Nasdaq, S&P fall with tech stocks out of favor

© Reuters. Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 12, 2022. REUTERS/Brendan McDermid

By Bansari Mayur Kamdar, Shreyashi Sanyal and Sinéad Carew

(Reuters) - The Nasdaq and S&P 500 were falling on Thursday as investors took profits from technology stocks ahead of the fourth quarter earnings season and after a three-session rally.

Among the S&P's 11 major sectors, technology was the biggest drag on the index followed by healthcare and then consumer discretionary.

The technology-laden Nasdaq had risen 1.7% in the last three sessions after falling 5.7% in the four prior trading days as investors watched the direction of interest rates. The prospect of Federal Reserve interest rate hikes this year is a concern to growth sectors such as technology and consumer discretionary.

Even though U.S. Treasury 10-year yields were falling on Thursday, investors went ahead and took their profits in Nasdaq stocks, according to Sameer Samana, senior global market strategist at Wells Fargo (NYSE:WFC) Investment Institute in St. Louis.

"We had a pretty nice rebound in the Nasdaq the last few days, so there might just be some lingering nervousness around rates the Fed and some profit taking, especially ahead of earnings," said the strategist.

By 2:17 p.m. ET (1917 GMT), the Dow Jones Industrial Average rose 33.31 points, or 0.09%, to 36,323.63, the S&P 500 lost 32.33 points, or 0.68%, to 4,694.02 and the Nasdaq Composite dropped 221.89 points, or 1.46%, to 14,966.51.

Companies will report results on the final quarter of 2021 in the coming weeks with banks JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo due to get the ball rolling on Friday, while big technology companies report next week.

Year-over-year earnings growth from S&P 500 companies were expected to be lower in the fourth quarter compared with the first three quarters but still strong at 22.4%, according to IBES data from Refinitiv.

With the focus on Thursday turning to more value-oriented stocks, the S&P 500 banks index rose 0.6%, hitting a record high during the session.

Retail investors have also raised their exposure to bank stocks ahead of the earnings announcements, according to Vanda (NASDAQ:VNDA) Research's weekly report on retail flows.

Delta Air Lines (NYSE:DAL) gained 3.4% after beating estimates for fourth-quarter earnings. Its chief executive also predicted a swift recovery from turbulence caused by the Omicron coronavirus variant, also helping to lift the S&P 1500 Airlines index by 3.4%.

Also, data showed the producer price index (PPI) rise 0.2% last month after advancing 0.8% in November while in the 12 months through December, the PPI rose 9.7% versus the 9.8% forecast of economists polled by Reuters.

The PPI figures come a day after Wall Street indexes cheered consumer inflation numbers that hit a 40-year high but largely met market expectations.

Fed Governor Lael Brainard said the U.S. central bank would be in a position to start what could be several interest rate hikes this year "as soon as" it completes winding down its bond purchases, expected to happen in March.

Wells Fargo followed Goldman Sachs (NYSE:GS), JPMorgan and Deutsche Bank (DE:DBKGn) in forecasting that the Fed might raise interest rates four times this year.

Advancing issues outnumbered declining ones on the NYSE by a 1.25-to-1 ratio; on Nasdaq, a 1.51-to-1 ratio favored decliners.

The S&P 500 posted 44 new 52-week highs and no new lows; the Nasdaq Composite recorded 69 new highs and 300 new lows.