Stocks slipped on Wednesday, ending a four-session rally that lifted the S&P 500 to a record, with investors skittish as benchmark Treasury yields fell to lows not seen since last summer.
The Dow Jones Industrial Average closed unofficially 42 points lower, the S&P 500 lost 2 points and the Nasdaq was down 11 points.
"We've had a bunch of up days, and May has been a good month, but the market could be getting spooked by falling yields. Market bears will say the bond market is smarter than the stock market, and a lot of people thought 2.5 percent was the line in the sand for the bottom falling out of the economy," said Nick Raich, CEO at the Earnings Scout.
"It is a big disconnect; the stock market is signaling growth, but bonds are doing something different. I would be worried if I saw bond yields falling with a deterioration in earnings trends, but we are just not seeing that," Raich added.
The 10-year U.S. Treasury yield fell 8 basis points to 2.441 percent, after dropping to 2.439 percent, its lowest since last summer.
A major factor driving bond yields lower is the unwinding of a trade that had investors long the U.S. dollar and shorting the Japanese yen and U.S. Treasuries coming into 2014, said Art Hogan, chief market strategist at Wunderlich Securities.
Supply and demand is also playing a role, as the government issues less debt but pension funds still need to reallocate into bonds, given their common mandate of having 60 percent of their holdings in equities and 40 percent in bonds. "Equities were up 30 percent last year, so pension funds need to increase their bond allocation," Hogan said.
The dollar climbed against the currencies of major U.S. trading partners and dollar-denominated commodities fell, with crude futures for July delivery down $1.39 to $102.72 a barrel, and gold futures for June delivery fell $6.20 to $1,259.30 an ounce.
On Tuesday, stocks ended higher with the S&P 500 setting another record, as investors cheered better-than-expected economic reports and merger activity.