Fall in financial stocks chops Wall Street's initial gains

Investors question how quickly the Trump administration can implement pro-growth policies

US stocks gave up early gains and turned sharply lower on Tuesday, led by a fall in financial shares, as investors began to question how quickly the Trump administration can implement pro-growth policies.

The financial index dropped 2 per cent and was on track for the biggest daily percentage fall since January 17. Bank of America, off 4.6 per cent, was the biggest drag on the S&P 500 while a 2.3 per cent drop in Goldman Sachs pulled the Dow lower.

Financials have weakened in tandem with a pullback in bond yields following the Federal Reserve's policy announcement last week. The central bank raised rates by 25 basis points but signalled it would remain on a gradual pace of hike.

"With the financials, a lot of that has to do with the yield on the 10-year that has moved its way back to the middle of the range," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

"All the way down, financials have been getting tagged with that."

Benchmark 10-year US Treasuries were last up 9/32 in price to yield 2.441 per cent, the lowest yield since March 1.

Sectors expected to benefit from policies of lower taxes and fiscal stimulus were weaker as investors grew leery those plans may take longer to implement if the Trump administration has to expend more time and energy to get a healthcare plan passed.

The Russell 2000 index of smallcap stocks was down 1.7 per cent, on pace for its worst day since October 11.

"Republicans should have prioritised tax reform ahead of healthcare reform. They're coming across as a motley crew rather than a party that can get things done," said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee falls, Wisconsin.

The Dow Jones Industrial Average fell 136.82 points, or 0.65 per cent, to 20,769.04, the S&P 500 lost 16.54 points, or 0.70 per cent, to 2,356.93 and the Nasdaq Composite dropped 59.14 points, or 1 per cent, to 5,842.39.

The financial sector is the best performing of the 11 major S&P sectors since the election, up nearly 20 percent on President Donald Trump's proposals of deregulation and tax reform. The Russell 2000 is up nearly 14 per cent over the same time frame.

Stocks have been hovering near record highs for most of the month as investors have also grown concern about elevated valuations.

The S&P 500 is trading at about 18 times forward earnings estimates against the long-term average of 15 times, according to Thomson Reuters data.

Declining issues outnumbered advancing ones on the NYSE by a 3.11-to-1 ratio; on Nasdaq, a 4.06-to-1 ratio favoured decliners.

The S&P 500 posted 25 new 52-week highs and 6 new lows; the Nasdaq Composite recorded 73 new highs and 66 new lows.