US close: Stocks retreat from record highs as post-election rally stalls

US stocks snapped a five-day winning streak on Tuesday, pulling back from record levels as the post-election rally ran out of steam with bond yields at a four-month high.

The Dow fell 0.9%, the S&P 500 declined 0.3% while the Nasdaq slipped 0.1%.

All three Wall Street benchmarks hit fresh record highs on Monday following five straight days of gains in the aftermath of last Tuesday's presidential election – with sentiment also lifted by another rate cut by the Federal Reserve on Thursday.

As of Monday's close, the S&P 500 had risen 5.1% over the past week, the Dow gained 6% and the Nasdaq jumped 6.2%.

However, a big surge in yields prompted investors to take profits on Tuesday, with the yield on a 10-year US Treasury up 13 basis points at 4.44%, trading at levels not seen since July.

"There’s a dark cloud approaching as bond yields continue to hold at elevated levels. The Federal Reserve may have got the short end covered, to some extent, but investors decide what goes on further out," said David Morrison, senior market analyst at Trade Nation.

"The recent pick-up in yields can suggest many things, including a strengthening economy which has no need of aggressive rate cuts, or fears of a renewed bout of inflation, given Trump’s promised tax cuts and tariffs, along with the prospect of trillions being added to the national debt."

On the macro front, the National Federation of Independent Business' small business optimism index increased to 93.7 in October, up from 91.5 in September and beating forecasts of 91.9 with the highest reading in three months.

Tom Barkin, the president of the Richmond Federal Reserve, was making headlines after saying that the economy looks "pretty good" but the jobs market needs to be closely monitored. He said the labour market "might be fine or it might continue to weaken".

Market movers

Home improvement retailer Home Depot was subdued despite beating forecasts with an increase in profits in the third quarter as lower margins were offset by higher sales. The company also raised its outlook for the full year ending January 2025, predicting a bigger-than-expected increase in annual sales.

Shares in Shopify surged by around a quarter after the ecommerce platform beat forecasts for the third quarter in a row and raised full-year revenue guidance. Third-quarter net income doubled to $344m, ahead of the $332m consensus forecast, on the back of strong growth in subscriptions.

Industrial conglomerate Honeywell was in demand after Elliott Management diclosed a $5bn stake and called for a break-up of the company, saying the company should pursue a separation of its Aerospace and Automation divisions.

In contrast, media and internet conglomerate IAC fell sharply after revealing it was looking into a spinoff of its listed online home improvement marketplace Angi, causing shares in the latter to plummet.