Stocks stalled, oil rallied and the government-bond selloff eased Tuesday.
In recent sessions, investors have moved out of long-dated U.S. government bonds and bond-like stocks such as utilities, and strengthened positions in the dollar, expecting that President-elect Donald Trump will likely increase fiscal spending and lower corporate taxes, ultimately boosting growth and inflation.
On Tuesday, the Dow Jones Industrial Average declined 7.1 points, or less than 0.1%, to 18862 shortly after the opening bell. The S&P 500 rose 0.3%, and the Nasdaq Composite added 0.4%.
"Attention at the moment is on the bond market, which is driving everything," said Stephen Gallo, strategist at BMO Capital Markets.
The yield on the 10-year U.S. Treasury note was recently at 2.230%, according to Tradeweb, compared with 2.224% on Monday, after its largest five-day gain since 2009. German government bond yields fell slightly to 0.306%. Yields move inversely to prices.
"Buyers are sniffing around, seeing some value with yields as high as they've been," said Mr. Gallo, noting he nonetheless expects the direction of yields and the dollar to remain higher in the coming weeks.
Much of this will depend on the Federal Reserve's stance in December. Richmond Fed President Jeffrey Lacker said Monday that possible fiscal stimulus under the incoming administration could cause the U.S. central bank to raise interest rates faster than anticipated.
"As a general matter, doing monetary policy with a more stimulative fiscal outlook usually warrants higher policy rates," he said.
The Stoxx Europe 600 was nearly unchanged following a subdued session in Asia.
Sharp swings in commodity prices drove rotation into Europe's oil and gas sector and out of basic resources.
Energy companies including BP, Royal Dutch Shell and Total were buoyed as Brent crude oil rose more than 3% to $ 46 a barrel. Oil prices began to reverse three days of losses Tuesday as traders positioned for a meeting of the Organization of the Petroleum Exporting Countries at the end of the month, where members are set to discuss a proposed production cut.
A fall in mining companies kept European gains in check, while Europe's real estate and utilities sectors, which are considered bond proxies, were among the best performers.
Earlier, stocks in Shanghai and Japan ended with small losses for the first time in four sessions, while shares in Hong Kong rebounded 0.5%.
The yield on 10-year Japanese government bonds rose above zero for the first time since September, catching up with Monday's moves overseas.
In currencies, the WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, inched up 0.1%, on course for a seventh session of gains.
The Mexican peso, which has fallen more than 10% from a week ago, rose 1% against the dollar. The Chinese yuan fell to its lowest level against the dollar in nearly eight years, continuing a recent decline.
Write to Riva Gold at riva.gold@wsj.com
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