By Lewis Krauskopf, Ankika Biswas and Amruta Khandekar
(Reuters) - The S&P 500 fell modestly on Thursday as hawkish comments from a U.S. Federal Reserve official and data showing the labor market remained tight led some investors to worry about more aggressive interest rate hikes.
Equities fell sharply early in the session and then rebounded, with the Dow last edging higher, supported by an upbeat earnings outlook from Cisco Systems (NASDAQ:CSCO).
Stocks have retreated in recent days after a strong month-long rally after softer-than-expected inflation reports raised hopes the Fed would temper its rate hikes.
“Hope springs eternal in the equity market, and the markets have been fighting the Fed,” said Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute in St. Louis.
"You have had these reversals, you have had these spectacular rallies. But yet, when you look back at the full year 2022, you have had lower highs and lower lows and there’s nothing to suggest that we have broken that pattern.”
The Dow Jones Industrial Average rose 22.8 points, or 0.07%, to 33,576.63, the S&P 500 lost 9.27 points, or 0.23%, to 3,949.52 and the Nasdaq Composite dropped 9.73 points, or 0.09%, to 11,173.93.
St. Louis Fed President James Bullard said the central bank needs to keep raising rates given that its tightening so far "had only limited effects on observed inflation."
Data showed the number of Americans filing new claims for unemployment benefits fell last week, suggesting the labor market remained tight, after a report on Wednesday detailed strong retail sales growth last month that indicated the economy has weathered rate hikes.
Bets from traders of a 75 basis point hike at the Fed's next meeting climbed to 19% from about 15% a day earlier, according to the CME Group's (NASDAQ:CME) FedWatch tool, with the remaining odds placed on a smaller 50 basis point increase.
Cisco shares rose over 4% after the company raised its full-year revenue and profit forecast with supply chain hurdles easing. The stock helped drive a 0.3% increase in the heavyweight S&P 500 information technology sector.
Most S&P 500 sectors were lower, however, with utilities and materials both dropping about 1.4%.
In other company news, shares of Macy's (NYSE:M) surged over 14% after the department store chain raised its annual profit forecast on resilient demand for high-end clothes and beauty products.
Declining issues outnumbered advancing ones on the NYSE by a 2.54-to-1 ratio; on Nasdaq, a 1.83-to-1 ratio favored decliners.
The S&P 500 posted no new 52-week highs and 1 new lows; the Nasdaq Composite recorded 28 new highs and 144 new lows.