Wall St sheds early gains as investors assess Fed minutes

By Bansari Mayur Kamdar and Devik Jain

(Reuters) - Wall Street's main indexes struggled for direction and pared early gains Thursday as investors scrutinize the Federal Reserve's minutes of the July meeting for a "less hawkish" tone against the backdrop of data that had eased inflation worries.

While the minutes did not clearly hint at the pace of rate increases, it showed policymakers committed to raising rates to tame inflation even as they start to acknowledge the risk they might go too far and curb economic activity too much.

Traders expect a greater chance of a 50 basis point rise in borrowing costs in September instead of a 75 basis point increase for a third time. [FEDWATCH]

"The recent rally clearly has been driven by a combination of better than feared economic data and earnings," said Art Hogan, chief market strategist at B. Riley Wealth, calling the Fed's minutes as "less hawkish".

High-growth technology stocks such as Alphabet (NASDAQ:GOOGL) and Nvidia (NASDAQ:NVDA) rose 0.3% and 1.9%, respectively, in choppy trading as U.S. Treasury yields pulled back. [US/]

Wall Street's indexes have been gaining over the last few weeks after a softer-than-expected inflation in July, with focus now on the Fed's annual Jackson Hole symposium late next week.

Either a 50 bps or 75 bps rate hike in September would be a "reasonable" way to get short-term borrowing costs to a little over 3% by year end and a little higher than that in 2023, San Francisco Federal Reserve Bank President Mary Daly said on Thursday.

The Fed has lifted its benchmark interest rate by 225 bps so far this year to control four-decades high inflation.

Meanwhile, number of Americans filing new claims for unemployment benefits fell last week and data for the prior period was revised sharply down, suggesting the labor market remains tight despite a slowdown due to higher interest rates.

"The Fed is looking at the (labor market) and they will continue to be data dependent," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.

"We've had big gains, the market is digesting that at this point. Right now, we're in a holding pattern and some folks are worried that we're going to see another low."

At 12:44 p.m. ET, the Dow Jones Industrial Average was down 115.86 points, or 0.34%, at 33,864.46, the S&P 500 was down 5.08 points, or 0.12%, at 4,268.96, and the Nasdaq Composite was down 8.79 points, or 0.07%, at 12,929.34.

The tech-heavy Nasdaq has bounced nearly 22% from its mid-June lows, while the benchmark S&P 500 has risen 17%, supported by upbeat quarterly results.

However, retail earnings have been mixed so far. Encouraging reports from Walmart (NYSE:WMT) and Home Depot (NYSE:HD) earlier this week were offset by Target (NYSE:TGT)'s profit slump, which dragged the retail sector down 1.2% in the previous session.

Kohl's Corp (NYSE:KSS) slid 5.5% after the retailer cut its full-year sales and profit forecasts.

Verizon Communications Inc (NYSE:VZ) declined 2.6% after MoffettNathanson downgraded the telecom operator's shares.

Declining issues outnumbered advancers for a 1.07-to-1 ratio on the NYSE and a 1.25-to-1 ratio on the Nasdaq.

The S&P index recorded four new 52-week highs and 29 new lows, while the Nasdaq recorded 47 new highs and 50 new lows.