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Stocks Drop for the Week Amid Geopolitical Worries -- WSJ

19 May 2018 6:32 am
By Riva Gold and Akane Otani 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 19, 2018).

U.S. stocks stalled Friday, posting weekly losses as bubbling uncertainty around global trade policies and interest rates limited investors' appetite for risk.

Stocks struggled for traction as investors grappled with geopolitical tensions spurred by new government proposals in Italy, doubts about a coming meeting between the U.S. and North Korea and continuing trade talks with China.

"There are a few fires at the moment that investors need to take on board," said Olivier Marciot, a multiasset portfolio manager at Unigestion. "We still don't think it will be material for now, but it will be a strong headwind to equity markets as long as headline risk remains as strong as that."

The Dow Jones Industrial Average edged up 1.1 point, or less than 0.1%, to 24715.09. The S&P 500 declined 7.16 points, or 0.3%, to 2712.97 while the Nasdaq Composite lost 28.13 points, or 0.4%, to 7354.34.

For the week, the Dow industrials fell 0.5%, while the S&P 500 lost 0.5% and the Nasdaq shed 0.7%--snapping a two-week winning streak.

Bondlike sectors of the stock market took a hit as rising crude-oil prices and interest rates stoked fresh investor bets on inflation.

Shares of utilities and real-estate companies in the S&P 500, which are considered bond proxies because of their relatively hefty dividend payouts, both posted weekly losses of more than 3%.

Government bonds came under pressure as well, with the yield on the benchmark 10-year U.S. Treasury note settling at 3.067%, up from 2.971% a week ago. Yields rise as bond prices fall.

Meanwhile, U.S. crude for June delivery edged down 0.3% to $71.28 a barrel, although prices remained up 18% for the year.

Rising oil prices helped drive shares of energy companies like Range Resources and Helmerich & Payne up more than 4% this week, although some analysts warn that a prolonged rally in crude could drive inflation higher and cut into corporations' profits.

For now, though, the risks look muted, said Ed Keon, chief investment strategist at investment firm QMA.

"We think inflation will probably rise modestly, maybe even a little above the Fed's target, but don't think it will be enough to change the Fed's current course or cause a major problem for stock prices," Mr. Keon said.

One factor that has helped keep many investors optimistic: the fact that data continues to suggest the U.S. economy is expanding at a slow and steady pace, even as reports have pointed to some loss of momentum in Europe and Japan.

Retail sales data Tuesday showed consumers picked up spending at the start of the spring, undeterred by rising gasoline prices. The solid economy has helped retailers like Macy's, whose shares jumped 15% for the week to $33.96 following a stronger-than-expected earnings report.

"Everyone is looking for the cloud in the sky, but the outlook is still positive," said JJ Kinahan, chief market strategist at TD Ameritrade.

Elsewhere, Italy's benchmark FTSE MIB index fell 1.5% Friday after two antiestablishment parties seeking to form a governing coalition agreed to scrap or dilute pension reforms that were widely credited with helping keep Italy's finances on a sustainable path.

For markets, "the best case is inertia and the worst case is passing measures that will have a huge impact on Italian debt," said Unigestion's Mr. Marciot, noting uncertainty in Italy is likely to keep the euro under pressure and potentially encourage the European Central Bank to exercise more caution in normalizing monetary policy.

Stocks more broadly across Europe largely advanced, though, with the Stoxx Europe 600 posting a 0.6% weekly advance.

The recent strengthening of the U.S. dollar has helped support shares of global multinationals translating revenue into weaker local currencies.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 others, extended gains Friday after closing at its highest level since December.

Japan's Nikkei Stock Average rose 0.8% for the week, marking its eighth consecutive weekly advance.

Giovanni Legorano contributed to this article

Write to Riva Gold at riva.gold@wsj.com and Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

May 19, 2018 02:32 ET (06:32 GMT)

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