By Akane Otani and Mike Bird 

The Nasdaq Composite edged higher Tuesday, heading toward a fresh record close.

The tech-heavy index has outperformed both the S&P 500 and the Dow Jones Industrial Average in 2017 as investors have piled into shares of companies thought to benefit from U.S. economic growth.

That's left the Nasdaq up about 14% this year, while the S&P 500 has gained 7.2% and the Dow industrials have risen 6.1%.

Still, some investors and analysts caution that technology stocks, which have risen double-digit percentages in the S&P 500 in 2017, may be vulnerable to a pullback. Global fund managers say the Nasdaq has become the most crowded trade, Bank of America Merrill Lynch found in a survey published Tuesday.

The Nasdaq Composite rose 0.2% on Tuesday, on course for its 33rd record close of the year. The Dow Jones Industrial Average fell 6 points, or less than 0.1%, to 20975 and the S&P 500 lost 0.1%.

Others say political uncertainty in the U.S. could more broadly weigh on stocks, especially if they appear to reduce the chances of tax cuts, which many hope will boost earnings. Bets on lower tax rates under the Trump administration had helped U.S. stocks rally after Election Day.

"In terms of potential implications for the markets, finding support in Congress for fiscal measures may prove even more difficult for President Donald Trump if the latest reports undermine his relationship with the Republicans," said Piotr Matys, foreign-exchange strategist at Rabobank, referring to reports that the president shared sensitive intelligence obtained from a close U.S. ally with Russia's foreign minister and ambassador.

Technology stocks rose 0.3% in the S&P 500 on Tuesday, led by gains in shares of Yahoo, which added 2.3% after the company announced it would buy back up to $3 billion of its common stock ahead of its proposed deal with Verizon Communications.

Real estate shares slid 0.5% in the S&P 500, among the worst-performing sectors in the broad index Tuesday, after data showed U.S. new-home construction declined in April for the third time in four months.

Shares of companies that own and manage shopping centers also slid, with Simon Property Group falling 1%. Earlier, TJX reported first-quarter sales that missed analysts' expectations, becoming the latest major retailer to post downbeat sales results for the latest quarter.

As stocks fell, government bonds ticked higher, with the yield on the 10-year U.S. Treasury note falling to 2.329% from 2.338% Monday. Yields fall as bond prices rise.

Elsewhere, European stocks wavered, with the Stoxx Europe 600 down less than 0.1%.

Japan's Nikkei Stock Average edged up 0.3% and the Shanghai Composite rose 0.7%, posting its fourth consecutive session of gains.

Write to Akane Otani at akane.otani@wsj.com and Mike Bird at Mike.Bird@wsj.com

 

(END) Dow Jones Newswires

May 16, 2017 14:45 ET (18:45 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.