The US central bank on Wednesday raised interest rates by half a percentage point but Fed Chair Jerome Powell explicitly ruled out a hike of 75 basis points in a coming meeting. Traders, however, on Thursday raised their bets on a 75 basis point hike at the Fed's June meeting.
The Dow Jones Industrial Average fell 197.09 points, or 0.57%, to 34,557.84, the S&P 500 lost 17.31 points, or 0.39%, to 4,445.81 and the Nasdaq Composite dropped 160.70 points, or 1.16%, to 13,733.14.
The US consumer price index rose 0.9% in October after gaining 0.4% in September, accelerating 6.2% in the 12 months through October, the largest year-on-year advance since November 1990.
Technology stocks led the gains as investors continued their focus on the latest round of corporate earnings.
Major indices have closed at records the last three sessions, but were under pressure ahead of an expected Fed announcement later Wednesday to trim back stimulus bond purchases.
The yield on the 10-year Treasury note fell to 1.55%. Pfizer was up 1.3% after delivering a strong profit report.
The yen neared a four-year low against the dollar with Japan seemingly not on course to tighten monetary policy in the short term, in contrast to the Federal Reserve which this week could announce plans to begin tapering its pandemic-fuelled stimulus support.
The benchmark S&P 500 had more gainers than losers, but big technology stocks were falling and weighing down the broader market. A mix of companies that rely on direct consumer spending also fell and offset gains elsewhere.
A strong corporate earnings season has provided some much-needed support to investors in recent weeks as companies showed resilience in the face of supply snarls, surging commodity and wage costs, as well as spiking Covid-19 cases.
The S&P 500 and Dow both powered to new intra-day highs as the opening bell rang after closing at record levels on Monday.
Investors have been pleased with most of the reports so far, which have confirmed worries about higher costs, but also offered encouraging commentary about strong consumer demand that is enabling many companies to pass on price increases.
Abbott Laboratories, Biogen and Anthem rose after reporting quarterly results that beat analysts’ expectations.
Health care companies were making some of the biggest gains in the early going.
Technology and health care companies were leading the way lower, while energy companies bucked the downward trend and moved higher.
The S&P 500 added 0.9% early Thursday, putting the benchmark index into the green for the week.
Delta Air Lines fell 3.4% despite reporting higher earnings as the airline warned that higher fuel and labor costs could affect its profitability going forward.
Technology stocks were doing better than the rest of the market, and that helped send the Nasdaq up 0.3%.
This week's calendar includes an update on US consumer prices, as well as earnings reports from JPMorgan Chase and other leading banks.
The market snapped out of a days-long bout of volatility late Wednesday after Senate GOP leader Mitch McConnell made an offer that would allow an emergency extension of the debt ceiling into December.
The dollar was mixed against its main rivals ahead of key US jobs data due Friday.
International markets also sold off, with exchanges in Japan, South Korea, Germany and France all dropping more than 1%.
Among individual companies, PepsiCo climbed 0.6 percent as it lifted its full-year forecast following better-than-expected profits.
Investors are preparing for the latest round of corporate earnings, which will ramp up in the next several weeks.
The Commerce Department's personal consumption expenditures price index was up 4.3 percent from August 2020 as the world's largest economy struggles with supply chain delays and shortages amid its bounceback from the pandemic's business closures.
The Senate was expected to approve later Thursday a stopgap measure to fund the government and avert a shutdown. However Washington remains mired in partisan conflict over President Joe Biden's wider legislative agenda.