U.S. stocks closed narrowly mixed on Wednesday as investors remained wary of climbing bond yields and the lack of indications for a strong second-quarter rebound in the economy. (Tweet This)
"The bond market is driving the bus here," said Peter Boockvar, chief market analyst at The Lindsey Group. "This was another disappointing retail sales number."
Yields crept towards 6-month highs touched on Tuesday morning. Gains and losses in equities were muted, with the Dow Jones industrial average and S&P 500 ending mildly lower after fluctuating around the flatline throughout the day. The Nasdaq held a few points higher as Apple, Microsoft and other tech stocks gained.
It's "helpful you haven't had further rout in fixed-income markets," said Ben Pace, chief investment officer at HPM Partners. "The retail sales number wasn't that good that it will speed up the Fed in any way."
Retail sales data for April was flat, with the ex-autos figure up just 0.1 percent, below estimates of a 0.5 percent gain. Expectations were for the data to show modest growth, partly due to the warmer weather.
"I think it really was disappointing," said Paul Nolte, portfolio manager at Kingsview Asset Management. "We could have rallied a lot more."
Following the retail sales data, JPMorgan lowered its expectations for second-quarter real annualized GDP growth to 2.0 percent from 2.5 percent.
"That second-quarter may not be as much of a bounce back from the first quarter," Boockvar said.
However, most analysts remain confident that growth will pick up in the third and fourth quarter.
Encouragingly, the U.S. dollar continued to weaken, declining 1 percent on Wednesday while the euro topped $1.13. Corporate profits in the first quarter were hit from rapid strengthening in the U.S. dollar.
Gold ended up $25.80 at $1,218.20 an ounce, its highest settle since April 6.
Meanwhile, the late afternoon recovery in bond yields weighed slightly on equities.
"I think we look through (retail sales) and look at the bond market," said Art Hogan, chief market strategist at Wunderlich Securities. He noted that the upward revision on March's retail sales balanced out softness in the April report.
In the second of bond auctions for the week, the Treasury Department auctioned $24 billion in 10-year notes at a high yield of 2.237 percent. Demand was slightly above average.
Yields crept higher while holding below Tuesday morning's 6-month highs. The U.S. 10-year Treasury yield edged up to 2.28 percent, while the 30-year traded near 3.07 percent.
"I think both (equity and bond) markets are range-bound," said Dan Heckman, fixed income strategist at U.S. Bank Wealth Management. "The 10-year is range-bound at a slightly higher (level) than earlier this year."
He said indications of inflation from gains in wages and uncertainty over the timing of an interest rate hike supported the gains in U.S. bond yields.
Analysts also pointed to the renewed rise in the German 10-year bund yield to 0.72 percent. European stocks ended mixed after a first-quarter GDP report that showed faster growth than the United States at 0.4 percent but still below analyst expectations.
"Rising yields are not a problem for the equity market in general," said Stephen Freedman, CIO head of U.S. thematic and sustainable investing strategy at UBS Wealth Management Americas. "But rapid rise in yields can be a catalyst for dramatic pullback."
Freedman expects the U.S. 10-year yield to reach 2.4 percent in the next 12 months.
The accelerated bond selloff in the last week weighed heavily on equities, sometimes sending the Dow off triple digits.
Crude pared morning gains, settling down 25 cents at $60.50 a barrel, after weekly inventory data showed a second-consecutive decline in buildup.
Gains in oil continued to weigh on the Dow transports, which declined 1 percent with Delta Airlines one of the only advancers. The airline announced $5 billion in buybacks and an increase in dividends to 13.5 cents from 9 cents a share.
In another disappointment, showed a gain of 0.1 percent, just shy of the expected 0.2 percent.
Macy's posted earnings that missed expectations, citing negative factors of West Coast port issues, winter weather and decreased spending by international tourists. The firm increased its dividend by 15 percent and raised its share repurchase authorization by $1.5 billion.
Owens-Illinois announced it is buying the food and beverage glass container business of Mexico's Vitro for $2.15 billion in cash. Vitro is the largest supplier of glass containers in Mexico.
Deutsche Bank upgraded Microsoft to "buy" from "hold," saying lower estimates and a slower PC market are already reflected in the stock, and that there's new investor enthusiasm about Office 365 and other products.
The closed down 0.64 points, or 0.03 percent, at 2,098.48, with utilities the greatest of six laggards and information technology leading advancers.
The Nasdaq closed up 5.5 points, or 0.11 percent, at 4,981.69.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded below 14.
Three stocks advanced for every two decliners on the New York Stock Exchange, with an exchange volume of 684 million and a composite volume of nearly 3.3 billion in the close.
—CNBC's Peter Schacknow contributed to this report.
On tap this week:
Earnings: Cisco Systems, NetEase, Jack in the Box, Shake Shack, WuXi Pharma
Earnings: Kohl's, Nordstrom, Party City, Applied Materials,Symantec, El Pollo Loco, King Digital
8:30 am: Initial claims
8:30 am: PPI
1:00 pm: $16 billion 30-year bond auction
Earnings: Nippon Telegraph, Petrobras
8:30 am: Empire State survey
9:15 am: Industrial production
10:00 am: Consumer sentiment
4:00 pm: TIC data
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