S&P 500, Dow ease as Fed official's comments dampen rate

By Shristi Achar A and Global Forex Trading MarketJohann M Cherian

(Reuters) - The and the Dow slipped on Friday after comments from a policy maker dampened recent investor optimism that the Federal Reserve could start monetary policy easing early next year.

New York Federal Reserve President John Williams pushed back on surging market expectations of interest rate cuts, saying the U.S. central bank is still focused on whether it has monetary policy on the right path to continue bringing inflation back to its 2% target.

Money markets now see a 73.7% chance of at least a 25-basis point rate cut as soon as March 2024, down from nearly 80% before Williams' comments, while still pricing in a 95.4% chance of another cut in May 2024, according to CME Group's (NASDAQ:) FedWatch tool.

"It's not unusual for Fed speakers to try to walk back outsize reactions to any particular Fed meeting, whether positive or negative," Art Hogan, chief market strategist at B Riley Wealth, said.

The Fed left interest rates unchanged on Wednesday, acknowledging slowing inflation and indicated lower borrowing costs were on the horizon, causing the to notch its second straight record high close on Thursday.

Despite the session's move on Friday, the dovish turn of events this week caused equities to rally, with the benchmark S&P 500 eyeing its longest weekly winning streak since September 2017.

U.S. Treasury yields fell below 4% to multi-month lows, with yield on the benchmark 10-year Treasury note last at 3.9502%. [US/]

On Friday, a survey showed domestic business activity picked up in December amid rising orders and demand for workers, which could further help to allay fears of a sharp slowdown in economic growth in the fourth quarter.

Later in the day, the expiry of quarterly derivatives contracts tied to stocks, index options and futures, also known as "triple witching", could potentially stoke market volatility, although stock swings have been muted recently.

At 9:50 a.m. ET, the Dow Jones Industrial Average was down 65.15 points, or 0.17%, at 37,183.20, the S&P 500 was down 7.60 points, or 0.16%, at 4,711.95, and the was up 37.41 points, or 0.25%, at 14,798.97.

Eight of S&P 500's 11 major sectors were in the red, with the utilities sector sliding 1.3%.

Propping up the tech-heavy Nasdaq were megacaps such as Microsoft (NASDAQ:), Alphabet (NASDAQ:) and Amazon.com (NASDAQ:), adding between 0.9% and 1.4%.

Intel (NASDAQ:) rose 2.1% after BofA Global Research upgraded the chipmaker's shares to "neutral" from "underperform", while Broadcom (NASDAQ:) advanced 3.6% to hit a record high of $1,149.

Costco Wholesale (NASDAQ:) rose 3.3% after the retailer topped Wall Street estimates for first-quarter results due to demand for cheaper groceries.

Darden Restaurants (NYSE:) slipped 2.5% after the Olive Garden owner forecast annual same-store sales below estimates.

First Solar (NASDAQ:) and Enphase Energy (NASDAQ:) added 1.7% and 1.0%, respectively, as Jefferies started coverage of the solar companies with a "buy" rating.

Declining issues outnumbered advancers for a 2.17-to-1 ratio on the NYSE and a 1.22-to-1 ratio on the Nasdaq.

The S&P index recorded 25 new 52-week highs and one new low, while the Nasdaq recorded 100 new highs and 27 new lows.

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