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Wall St falls as hawkish Fed comments sap risk appetite


By Shubham Batra and Shristi Achar A

(Reuters) – Wall Street’s main indexes fell on Friday and were set for weekly declines as hawkish comments from Federal Reserve officials fueled worries of interest rates staying higher for longer.

San Francisco Fed Bank President Mary Daly said in an interview to Reuters that two more rate hikes this year is a “very reasonable” projection, but hinted for the need for a more careful approach.

Her comments followed a hawkish stance by Fed Chair Jerome Powell in his two-day testimony before the Senate Banking Committee earlier this week.

Markets calmed briefly and the S&P 500 and the Nasdaq added some gains in the previous session after Powell said the Fed will proceed with caution.

But the indexes were still set to snap multiple weeks of gains, their worst weekly performance since the bank rout in March.

“We’re getting a little bit of a correction in the advance of the last three weeks or so. We’ve heard from the various Fed governors, Powell talk about higher interest rates,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest.

“We’re still getting more inverted yield curve. So that’s putting a little bit of downward pressure on equities.”

Money markets are still pricing in one more rate hike of 25 basis points (bps) in July, according to CME Group’s FedWatch tool, as opposed to two more as suggested by Powell.

Yields on the 2-year, which best reflects interest rate expectations, dropped to hover at 4.71% on Friday. [US/]

Meanwhile, S&P Global’s Purchasing Managers’ Index for both U.S. manufacturing and services activity showed business activity fell to a three-month low in June as services growth eased for the first time this year and the contraction in the manufacturing sector deepened.

Nine of the 11 major S&P 500 sectors were trading in the red, with consumer discretionary and technology leading declines.

Market heavyweights, including Tesla, Apple and Microsoft, were down between 1% and 3.5%, pressuring the tech-heavy Nasdaq.

At 9:55 a.m. ET, the Dow Jones Industrial Average was down 171.05 points, or 0.50%, at 33,775.66, the S&P 500 was down 33.00 points, or 0.75%, at 4,348.89, and the Nasdaq Composite was down 160.32 points, or 1.18%, at 13,470.29.

3M Co climbed 2.5% after the chemical company reached a $10.3 billion settlement with a host of U.S. public water systems to resolve water pollution claims tied to “forever chemicals”.

Carmax Inc jumped 9.2% after the used-car retailer’s first-quarter profit exceeded market expectations, benefiting from cost cuts.

Starbucks Corp fell 1.8% as the coffee chain’s unions said around 3,500 workers will strike next week in the U.S. after it claimed the company banned Pride month decorations at its cafes.

Investors will also monitor comments from some Fed policymakers due to speak later in the day.

Declining issues outnumbered advancers for a 2.46-to-1 ratio on the NYSE and for a 2.45-to-1 ratio on the Nasdaq.

The S&P index recorded six new 52-week highs and four new lows, while the Nasdaq recorded seven new highs and 62 new lows.

(Reporting by Shubham Batra and Shristi Achar A in Bengaluru; Editing by Arun Koyyur)

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