The S&P 500 and Nasdaq closed lower on Friday as disappointing quarterly reports from Snap Inc and Intel Corp dragged down the communications and technology sectors and investors turned skittish as Federal Reserve Chair Jerome Powell discussed stimulus tapering.
After hitting record highs in morning trading the Dow and the S&P 500 lost ground in a choppy session.
Stocks pulled back further while Powell was speaking but went on to pare losses after hitting a late morning low. Powell said the U.S. central bank was "on track" to begin reducing its purchases of assets.
"Powell's continuing on his data-driven approach and didn't appear incrementally more hawkish," said Sean Sun, portfolio manager at Thornburg Investment Management in Santa Fe, New Mexico.
But Sun said investors were "really anxious" about weaker than expected earnings at Snap, which attributed some weakness in its advertising business to global supply-chain disruptions and labor shortages that caused brands to pull back on their advertising spending.
This caused shareholders to exit other communications companies such as Facebook Inc and Twitter Inc, which also depend heavily on advertising revenue.
As a result the S&P's communications services index was the biggest drag on the benchmark index during the session.
"Consumers want to open their wallets and buy things but they can't if goods are stuck on container ships. And advertisers aren't going to advertise things they can't sell," said Sun, noting that growth stocks were down in sympathy.
"Investors are now thinking about risk reward and valuations in growth stocks leave less room for disappointment."
Intel shares also tumbled after the company missed third-quarter sales expectations, while its chief executive officer pointed to shortages of chips holding back sales of its flagship processors.
According to preliminary data, the S&P 500 lost 4.80 points, or 0.11%, to end at 4,544.98 points, while the Nasdaq Composite lost 125.50 points, or 0.83%, to 15,090.20. The Dow Jones Industrial Average rose 74.17 points, or 0.21%, to 35,677.25.
Still, the benchmark S&P 500 index, which boasted a record closing high on Thursday, looked set for its third straight week of gains.
Among the S&P's major sectors, consumer discretionary was a drag as Amazon.com Inc fell and Intel helped push down the high-profile technology index.
The financial sector was helped however by strong gains in American Express Co after it beat profit estimates for the fourth straight quarter.
Analysts increased their expectations for S&P 500 earnings growth for the third quarter, forecasting an increase of 34.8% year-on-year, up from an expected 31.9% rise at the beginning of the week, according to data from Refinitiv.
But investors are already looking beyond the impressive earnings numbers, according to Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Massachusetts.
"The real question around whether we can push higher is going to be whether economy is going to get better, because the earnings are backwards-looking," McMillan said.
Data showed U.S. business activity accelerated in October, as COVID-19 infections subsided, though labor and raw material shortages held back manufacturing.
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