S&P 500 Halts Rally, Small Caps Surge as Election Winners Sought

U.S. stocks ended mixed in whipsaw trading, with the Dow Jones Industrial Average edging higher to another record in its best week in five years, as investors speculate how Donald Trump’s policies will impact the economy and interest rates. Small caps in the Russell 2000 surged.

The S&P 500 Index slid 0.1 percent to 2,164.37 at 4 p.m. in New York, paring its best weekly gain since 2014. The Nasdaq 100 Index rose 0.1 percent as large-cap technology shares rebounded from a slide. The Dow rose to 18,847 for a second consecutive record close. The Russell 2000 Index surged 2.5 percent, extending its rally this week to 10 percent. U.S. bond markets were closed for the Veterans Day holiday.

The spotlight is intensifying on Trump’s policies as investors place bets on possible winners and losers. Banks have surged 11 percent in the five days, on track for the best weekly gain since 2009, on speculation that the president-elect and Republican-controlled Congress will roll back regulations. Trump’s promise to revive the nation’s infrastructure sent industrial shares soaring more than 7.5 percent, with commodities needed for everything from airports to bridges expected to benefit, according to Goldman Sachs Group Inc.

“Today you’re seeing some simple profit-taking going into a weekend, and understandably so,” said Matt Lloyd, chief investment strategist at Advisors Asset Management, which oversees $16.5 billion in Monument, Colorado. “People were saving money on the sideline heading into the election, which was always going to exacerbate whatever move was going to happen. We ended up getting a good rise following a short panic, and now people are pulling back a bit.”

Investors are also considering what a Trump presidency means for Federal Reserve policy and the trajectory of interest rates. Odds for a December increase in borrowing costs have risen to 84 percent from 78 percent a week ago. Rate-sensitive corners of the equity market have been punished. Utilities, real-estate investment trusts and consumer staples -- stocks that have been coveted for their high dividend payout as a source of income amid record-low bond yields -- have all retreated over the past five days.

Small caps extended their rally to a sixth day. The reason may be speculation Trump’s homeward-looking policies will favor the more domestic-focused index. At the same time, looser financial regulations touted by Trump could provide a relief to banks and insurers, which have a heavier weighting in the Russell 2000 than in the S&P 500.

As Trump prepares to take over the White House, earnings season is coming to an end. About 76 percent of companies that reported so far beat profit projections and 56 percent topped sales estimates. Analysts now expect quarterly earnings growth of 2.5 percent for the benchmark’s constituents, reversing forecasts for a 1.6 percent decline at the start of the month.

“Let’s face it, we still have to see what Trump’s policies are going to be and who’s going to be in his cabinet,” said Matt Maley, an equity strategist at Miller Tabak & Co. LLC in New York. “People want to take a breather and digest what’s gone on this week heading into the weekend.”

A slide of more than 3 percent in crude weighed on energy shares Friday, making them the worst-performing group in the S&P 500. Materials producers also retreated as gold and silver plunged. Expectations for higher inflation that have sparked a bond rout make precious metals vulnerable as a store of value.

Walt Disney Co. climbed 3 percent after predicting renewed growth next year and beyond even as fourth-quarter profit fell short of estimates. Nvidia Corp surged 30 percent after the biggest maker of graphics chips used by computer gamers forecast quarterly sales that signaled continued strong demand for its signature products and gains in new markets such as data centers.