By Sinéad Carew and Lisa Pauline Mattackal
(Reuters) -Wall Street’s main indexes closed lower on Friday after Federal Reserve Chair Jerome Powell pointed to a slower pace of interest-rate cuts and investors reacted to cabinet selections by U.S. President-elect Donald Trump.
Powell on Thursday cited ongoing economic growth, a solid job market, and inflation above the U.S. central bank’s 2% target as reasons it can afford to be careful with the pace and scope of future rate cuts.
Traders increased bets the Fed will not change rates at its December meeting, pricing in a roughly 42% chance, versus roughly 14% a month ago, according to the CME FedWatch tool. They also dialed back expectations for easing in 2025.
This view was reinforced by Friday’s economic data showing U.S. retail sales rose slightly more than expected in October. Import prices also rebounded and data released on Wednesday and Thursday showed sticky inflation.
“In the last 48 hours we’ve had some pretty big changes, not just from the election but from economic data that was better than expected and Powell speaking about not having to be as aggressive on interest rate cuts,” said Adam Rich, deputy chief investment officer for Vaughan Nelson in Houston.
“Market expectations for interest rate cuts have come down materially and also the market is readjusting after a pretty bullish reaction to the U.S. election.”
Friday’s sell-off ended a week in which market focus shifted from the U.S. election win by Trump, seen as a pro-business choice, to worries about the rate cut path and potential inflation risks under the next administration.
“Volumes are elevated today. People are taking profits because this has been a good month. U.S. stocks have been doing well this month. But it’s not blanket profit taking,” said John Augustine, chief investment officer at Huntington National Bank, pointing to gains in the Utilities sector. “This suggests more of a rotation.”
Stocks of vaccine makers and packaged food companies also dipped after Trump said he would nominate Robert F Kennedy Jr, who has spread misinformation on vaccines and criticized ultra-processed foods, to head the Department of Health and Human Services.
According to preliminary data, the S&P 500 lost 78.65 points, or 1.32%, to end at 5,870.52 points, while the Nasdaq Composite lost 429.11 points, or 2.25%, to 18,678.54. The Dow Jones Industrial Average fell 306.30 points, or 0.70%, to 43,444.56.
Adding to Friday’s volatility was the regular expiration of stock and index options, according to Vaughan Nelson’s Rich.
Kochuba, founder of financial insights company SpotGamma, said Friday’s stock market weakness was partly due to investors being ill-prepared for a pullback.
CBOE’s volatility index, also known as Wall Street’s fear gauge, hit 17.55 earlier on Friday, the highest since Election Day on Nov. 5.
Shares of defense firms and government contractors also fell, partly on concerns about Trump’s picks earlier this week to head a new Department of Government Efficiency.
Among the ‘s 11 major industry sectors information technology was the day’s biggest loser.
Also, the fell sharply with Applied Materials (NASDAQ:) tumbling after the U.S. maker of chip-manufacturing equipment forecast first-quarter revenue below Wall Street estimates.
Shares in Moderna (NASDAQ:) and Pfizer (NYSE:) sank, weighing on healthcare, which hit its lowest since May.
The Consumer staples index was also hurt by the nomination news, with stocks including Monster Beverage (NASDAQ:), Lamb Weston and PepsiCo (NASDAQ:) falling.
The small-cap index fell for its fourth consecutive session.
