US stocks were drifting near their record heights yesterday, while Treasury yields keep marching higher amid expectations that the economy will pull out of its slump after a powerful recovery sweeps the globe later this year.

The S&P 500 was up less than 0.1 per cent after flipping between small gains and losses for much of the day. The Dow Jones Industrial Average was up 68 points, or 0.2 per cent at 31,073, as of 3:16 pm Eastern Standard Time, and the Nasdaq composite was up 0.2 per cent.

Markets have been charging higher recently amid a wave of optimism about the future. The roll-out of coronavirus vaccines has Wall Street anticipating a big rebound for the economy and corporate profits as daily life starts to return toward normal later this year. Expectations are also rising for another round of stimulus coming for the economy because Democrats are set to soon have control of the White House, Senate and House.

But the gains have been so big that critics say stocks and other investments simply look too expensive. Some measures of value in the stock market are at their priciest levels since 2000, when the dot-com bubble was popping. That includes how much investors are paying for each US$1 in profits that a company produces.

Low interest rates and almost non-existent inflation have been encouraging investors to keep piling into stocks, even though their prices are rising faster than their profits. But longer-term interest rates have begun to pull higher, with expectations for more borrowing by the US Government, economic growth and possibly inflation in the future. The yield on the 10-year Treasury has climbed to 1.14 per cent, for example. That’s up from 1.12 per cent late Monday and from less than 0.90% at the start of the year.

“I wonder whether, as the economy reopens and consumer confidence comes back, …[if] that [will] further push rates up and challenge the justification of these values,” said Andrew Slimmon, portfolio manager at Morgan Stanley Investment Management.

Besides driving investors away from pricey stocks, higher interest rates can also make borrowing more expensive and hit the housing and other industries particularly hard. That could mean additional pressure on the Federal Reserve, which has been trying to keep interest rates low to jolt the economy out of its pandemic-caused weakness.

The Fed has held short-term interest rates at a record low of nearly zero, and bought all kinds of bonds in its drive to help the economy. Its next policy meeting on interest rates is in two weeks.

And despite all the hopes for the future, the present remains bleak. The pandemic is accelerating around the world, particularly as new and potentially more contagious variants of the coronavirus spread. That helped force US employers to cut more jobs than they added in December, the first month that’s happened since the economy was collapsing during the spring.

Energy stocks made broad gains as crude oil prices advanced. Occidental Petroleum climbed 11.8 per cent for one of the biggest gains in the index, while Marathon Oil rose 7.6 per cent.

General Motors jumped 6.8 per cent amid excitement about a business unit it’s creating to sell electric-powered delivery vehicles and equipment.