By Shristi Achar A and Amruta Khandekar
(Reuters) - U.S. stocks edged lower on Friday as a rally this week ran out of steam with investors assessing remarks from Federal Reserve officials for clues on when the central bank may start cutting interest rates.
The S&P 500 and the Nasdaq rose for the third straight session on Thursday as Treasury yields fell after higher-than-expected weekly jobless claims underscored market expectations that interest rates have peaked.
The yield on the 10-year Treasury note briefly hit a two-month low earlier in the session but was last steady at 4.4530%.
Megacap stocks were mixed, with Microsoft (NASDAQ:MSFT) and Tesla (NASDAQ:TSLA) falling over 1%.
Adding to the pressure, Applied Materials (NASDAQ:AMAT) shares lost 4.4% on news that the semiconductor equipment maker was under an investigation.
Fed Vice Chair for Supervision Michael Barr said on Friday that he believes the central bank is at or near the peak of interest rates, while San Francisco Fed chief Mary Daly signaled she wants to adjust monetary policy only gradually, if at all, given the "murky" state of the economy.
"Daly (said) Fed is grappling with uncertainty over outlook and policy lags," said Thomas Hayes, chairman at Great Hill Capital LLC, adding the move lower in markets could partly be due to her comments.
"It would be normal to see some small consolidation before we push higher, but zooming out, managers are still pessimistic."
The communication services index led declines among the 11 major S&P 500 sectors, while energy shares rose 1.1% as oil prices gained. [O/R]
The small-cap Russell 2000 index climbed 0.9% outperforming broader markets and was eyeing weekly gains of nearly 5%.
Wall Street's three main indexes were poised to gain nearly 2% for the week, also on course for their third straight week of gains, as multiple data points highlighted easing inflationary pressures.
The S&P 500 and the Dow are set for their longest weekly winning streak since July, while the Nasdaq is on course for its longest streak of weekly gains since June.
While money markets have fully priced in the Fed will hold rates steady at its December meeting, bets of an at least 25 basis point rate cut in May stand at near 63%, slightly lower than about 69% earlier in the day, according to the CME Group's (NASDAQ:CME) FedWatch tool.
At 10:03 a.m. ET, the Dow Jones Industrial Average was down 0.39 points at 34,945.08, the S&P 500 was down 1.20 points, or 0.03%, at 4,507.04, and the Nasdaq Composite was down 28.27 points, or 0.20%, at 14,085.40.
Among other movers, Gap surged 29.9% as the apparel retailer posted better-than-expected third-quarter results due to improving sales at Old Navy and easing supply expenses.
ChargePoint Holdings slumped 36.7% as the electric-vehicle charging network provider lowered estimates for its third-quarter revenue and appointed Rick Wilmer as CEO.
Advancing issues outnumbered decliners by a 2.72-to-1 ratio on the NYSE and by a 1.88-to-1 ratio on the Nasdaq.
The S&P index recorded 13 new 52-week highs and one new low, while the Nasdaq recorded 26 new highs and 35 new lows.