Bank stocks continue rally; bond yields, dollar rise

Thu Nov 10, 2016 4:35pm EST
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By Chuck Mikolajczak

NEW YORK (Reuters) - A rally in major world stock markets lost some steam on Thursday despite a continued surge in bank shares, as investors reassessed positions, while U.S. bond yields continued to climb on the likelihood of inflation under President-elect Donald Trump's proposed fiscal policy.

Investors after the election quickly shifted to focus on Trump's priorities, including tax cuts, an increase in defense and infrastructure spending, and bank deregulation. The expansionary policy is expected to lead to inflation.

After a strong start, stocks in Europe reversed course and turned negative. Europe's index of leading 300 shares was down 0.3 percent after earlier touching a two-week high, with utilities dropping 4 percent. Wall Street also retreated from earlier highs, weighed by a 1.6 percent drop in the technology sector, its biggest decline in two months.

U.S. banking shares, kept the S&P 500 on the plus side as they rallied for a fourth straight session. The sector index surged nearly 4 percent after touching its highest level since May 2008. European bank shares advanced 2.3 percent.

"The Trump campaign did say it would repeal Dodd-Frank. Rates are higher and the yield curve is steeper. Those are all good things for the banks," said Warren West, principal at Greentree Brokerage Services in Philadelphia.

Bond yields continued to climb amid expectations interest rates will rise under increased spending.

Benchmark 10-year notes were last down 23/32 in price, yielding 2.143 percent, up from 2.064 percent late on Wednesday. The yields rose as high as 2.148 percent, the highest since January. The yield on 30-year Treasury bonds rose 38 basis points on the holiday-shortened week for its biggest weekly increase since January 2009.

The Dow Jones industrial average rose 218.25 points, or 1.17 percent, to 18,807.94, the S&P 500 gained 4.22 points, or 0.2 percent, to 2,167.48 and the Nasdaq Composite dropped 42.28 points, or 0.81 percent, to 5,208.80.   Continued...

A TV screen showing U.S. President-elect Donald Trump is pictured in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, November 9, 2016. REUTERS/Staff/Remote