NEW YORK — A rally that brought the stock market to record highs this year came back to life after U.S. home prices rose the most in seven years and consumer confidence reached a five-year high. As stock prices rose investors sold bonds, sending interest rates higher.
The Dow Jones industrial average closed at another record Tuesday, bouncing back from a loss the week before. The Standard & Poor’s 500 index also gained. The S&P is on track for its seventh straight monthly gain, the longest winning streak since 2009.
“They say the stock market tends to lead the economy. Now we’re starting to see the improvement on the economic front, so there’s some justification for this rally,” said Ryan Detrick of Schaeffer’s investment research.
The yield on the 10-year Treasury note jumped to 2.17 percent, its highest level since April 2012, as investors moved money out of safe assets and into riskier ones like stocks. That’s a big jump from Friday’s level of 2.01 percent. Markets were closed Monday for Memorial Day.
The stock market is coming off a rare loss last week, when both the Dow and the S&P 500 index had their first losing weeks in a month. Investors worried that the Federal Reserve might slow its extraordinary economic stimulus measures, which have also supported the stock market’s advance.
Part of the reason for the increase in bond yields is anticipation that the Fed may ease back on its $85 billion a month in bond purchases. Tim Courtney, chief investment officer at Exencial Wealth Advisors, is among those who see a bleak outlook for the bond market. Rising inflation will eventually lead to higher interest rates, Courtney said, and losses for bond investors.