Thursday, July 11, 2019 | 12:14 p.m.
An early rally on Wall Street that sent the Dow Jones Industrial Average above 27,000 for the first time lost much of its momentum Thursday afternoon.
The S&P 500 edged lower, erasing the gains that had briefly propelled the benchmark index above 3,000 for the second day in a row. The Nasdaq composite also turned red, pulling below its record closing high from a day earlier.
Bond yields surged, making traditionally high-yielding sectors such as utilities and real estate stocks less attractive. The yield on the 10-year Treasury note climbed to 2.13% from 2.06% late Wednesday.
The spike in bond yields helped drive bank stocks higher. When bond yields rise, they push up interest rates on mortgages and other loans, making them more profitable for lenders. Bank of America rose 1.5% and Goldman Sachs gained 2.5%.
Health care stocks took some of the heaviest losses, even though several big health insurers and pharmaceutical companies surged after the White House withdrew a drug rebate plan that had aimed to reduce the cost of medications for people on Medicare by shifting rebates from insurers and distributors to patients.
The market started the day riding a two-day winning streak. It had been trending higher as investors grew more confident that the Federal Reserve may cut interest rates for the first time in a decade as soon as the end of this month.
On Wednesday, Fed Chairman Jerome Powell said that many Fed officials believe a weakening global economy and rising trade tensions have strengthened the case for a rate cut. The remarks came as Powell gave testimony before the House Financial Services Committee.
New data showing consumer prices rose in June from a year earlier wasn't expected to give the Fed reason to reconsider whether it should lower rates, if necessary. Inflation has remained muted through much of the economy's 10 year expansion, which Powell has said cited as a justification for potentially lowering rates.
KEEPING SCORE: The S&P 500 fell 2 points, or 0.1%, to 2,900 as of 2:18 p.m. Eastern Time.
The Dow gained 139 points, or 0.5%, to 26,999. The Nasdaq composite slid 0.3%.
Major stock indexes in Europe fell.
THE QUOTE: "With the markets at 27,000 on the Dow and 3,000 on the S&P, they're baking in that a deal gets done with China, that the Fed cuts rates and remains dovish and then earnings and guidance come in better than expected," said Sean Lynch, managing director of equities at Wells Fargo Private Bank. "We get a hiccup in any one of those, you'll see a little bit of a pullback in the market."
SECTOR BY SECTOR: Real estate investment trusts, which tend to lose favor among income-seeking investors when bond yields become more attractive, took the heaviest losses. Prologis slid 2.7%.
Despite the gains for big health care companies, the sector was down overall. Merck & Co. dropped 5.7%.
Communications, utilities, energy and materials stocks also fell.
Retailers and other consumer-focused companies notched gains. Lowe's Cos. rose 1.7%. Best Buy added 1.5%.
Chipmaker Nvidia led the technology sector higher, climbing 3.8%.
EARNINGS PICTURE: Traders also weighed a mix of corporate earnings reports, Delta Air Lines and aviation maintenance company Air notched gains after their latest quarterly results topped Wall Street's forecasts. Bed Bath & Beyond and Fastenal slumped on disappointing results.
Corporate earnings will keep investors busy starting next week, when S&P 500 companies begin reporting results for the April-June quarter.
Companies have been lowering expectations for how much profit they made in the quarter. Wall Street now projects that overall S&P 500 company earnings for the quarter fell 2.6% from a year earlier, according to FactSet. As recently as the end of March, earnings were forecast to be down only 0.5%.
This could be the first time in three years that S&P 500 companies report a back-to-back decline in overall earnings.
DRUG REBATE PLAN SCRAPPED: Drugstore chains rose after President Donald Trump withdrew a drug rebate plan that aimed to reduce the financial bite of costly medications for people on Medicare.
The once-highly promoted plan from Health and Human Services Secretary Alex Azar ran into opposition within the White House. The pushback grew after the nonpartisan Congressional Budget Office estimated the plan would have little impact on manufacturer prices and would cost Medicare $177 billion over 10 years because it would lead to higher premiums subsidized by taxpayers.
Cigna surged 8.9%, CVS Health gained 4.2%, UnitedHealth climbed 5% and Anthem rose 4.5%.
CONSUMER PRICES: The Labor Department said Thursday that the consumer price index increased 1.6% in June from a year earlier. That is down from 1.8% in May and the second straight drop. It rose 2.1% from a year ago.
Inflation has been muted throughout the 10-year expansion, now the longest on record, even as the unemployment rate has dropped to a very low 3.7%. Powell cited persistently low inflation on Wednesday as a justification for potentially lowering short-term interest rates at the Fed's next meeting in late July.
LOSING ITS GRIP: Fastenal slid 4% after the maker of industrial and construction fasteners' latest quarterly results fell short of Wall Street's expectations.
TAKING FLIGHT: Air surged 8.2% after the airplane maintenance company's fiscal fourth-quarter earnings and revenue beat analysts' expectations.
BEYOND DISAPPOINTING: Bed Bath & Beyond slumped 5.1% after the home goods retailer reported revenue that fell short of forecasts.