S&P 500 Down As Microsoft Slips; Fed Official's Comments Weigh

The S&P 500 and the Dow lost ground on Thursday after Microsoft made a surprise cut to its earnings outlook and comments from a Federal Reserve official quashed recent optimism about an eventual pause in the central bank's rate hike moves.

Seven of the 11 major S&P sectors fell, with healthcare, utilities and consumer staples stocks leading the declines.

Fed Vice Chair Lael Brainard said she thinks a half-point rate hike in the next couple of Fed meetings is reasonable, and sees little case for pausing rate hikes in September.

"The market are sensing that the move so far has done little to rein in the inflationary pressures and therefore, the sense is that they're going to have to get more aggressive and that's just causing continued kind of angst and nervousness in the market," said Kenny Polcari, managing partner at Kace Capital Advisors.

"Not a disaster, but certainly nervousness."

Microsoft fell 2.4% after the company became the latest U.S. corporation to warn of a hit to its profits from a stronger dollar. It cut its fourth-quarter forecasts for both profit and revenue.

U.S. stock indexes staged a strong rally towards the end of May to recoup earlier losses in the month, as signs that inflation may have peaked led investors to speculate that the Fed may not raise rates as much as previously expected.

The Fed will also be looking at the nonfarm payrolls report on Friday that will shed light on the health of the labor market. Economists are expecting the economy to have added 325,000 jobs last month.

"If we get a weak number (tomorrow) that is close to this, that means maybe the tight labor market is beginning to show cracks and that will be a relief for the Federal Reserve," Peter Cardillo, chief market economist at Spartan Capital Securities in New York, said.

The ADP National Employment report on Thursday showed private payrolls rose by 128,000 last month, far below the estimate of 300,000, and a decline from the downwardly revised 202,000 in April.

Prices of Brent crude were little changed after erasing early losses. OPEC+ agreed to boost crude output to compensate for a drop in Russian production. [O/R]

At 10:45 a.m. ET, the Dow Jones Industrial Average was down 177.06 points, or 0.54%, at 32,636.17, the S&P 500 was down 9.34 points, or 0.23%, at 4,091.89, and the Nasdaq Composite was up 36.32 points, or 0.30%, at 12,030.78.

Ford Motor Co rose 1.6% after the Michigan-based automaker said it plans to invest $3.7 billion in assembly plants in Michigan, Ohio and Missouri.

Hewlett Packard Enterprise Co slid 7.2% after the IT and hardware firm released a disappointing full-year forecast due to currency headwinds and its exit from Russia.

Chewy Inc surged 17.7% after the online pet supplies retailer beat first-quarter sales estimates.

Advancing issues outnumbered decliners by a 1.21-to-1 ratio on the NYSE and by a 1.61-to-1 ratio on the Nasdaq.

The S&P index recorded one new 52-week highs and 29 new lows, while the Nasdaq recorded 13 new highs and 77 new lows.