The S&P 500 and Nasdaq Composite finished lower on Thursday after all three of the major averages posted three straight days of gains. Traders took a pause from the rebound rally and turned their attention to inflation data due out on Friday.
The Dow Jones Industrial Average ended the trading session at 35,754.69, losing less than a point. The S&P 500 fell 0.72% to 4,667.45 and the Nasdaq Composite slid 1.7% to 15,517.37. All the major averages are still on track for a winning week.
Stocks gave back some of their gains from recent days, with the moves higher spurred by the belief that the omicron variant of Covid looks less severe than earlier forms.
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"We think Covid is still the investor narrative," said Greg Bassuk, chief executive officer of AXS Investments. "So we think investors are not only taking a breather, but a lot of eyes are shifting to economic data to gauge where the Fed might be going in terms of potentially faster and greater extent of tapering."
Several travel-related stocks, which led the market higher throughout the week, were lower Thursday. Shares of Carnival and Norwegian Cruise Line dipped about 1.6%. United Airlines was 1.7% lower. Travel booking stocks Expedia and Booking Holdings lost 1.5% and 1.7%, respectively. The Invesco Dynamic Leisure & Entertainment ETF fell 1.2%. All are still on track to end the week higher, however.
Separately, shares of American Airlines fell 0.4% after the company said it's reducing its schedule due to the fact that it's still awaiting Boeing Dreamliner deliveries. Shares of Boeing slid 1.6%.
Rent The Runway shares tumbled by 4.1% after reporting swelling losses and lower than pre-pandemic subscriber growth for its most recent quarter. Electric vehicle maker Lucid saw shares fall 18.3% after the company announced a proposed $1.75 billion offering of convertible senior notes.
Still, there were some positive moves. CVS gained 4.5% after it issued upbeat guidance ahead of its investor day. Home-furnishings retailer RH rose about 5.4% after it reported blowout earnings and lifted the low end of its revenue outlook.
The moves come a day ahead of important inflation news. On Friday, the Labor Department will release the consumer price index for November. Economists surveyed by Dow Jones expect the year-over-year growth rate to be 6.7%. If that is the case, it will mark the biggest move since June 1982.
Markets already are expecting a high inflation reading, with some economists projecting the possibility that the headline number including food and energy could exceed 7%.
That, in turn, poses risks that the Federal Reserve will move more quickly than already anticipated. Fed officials are expected to react to the burst in inflation by announcing next week that the central bank will begin pulling back on its economic aid.
The first step will be accelerating the reduction in the central bank's monthly bond purchases, with markets expecting the Fed to double the taper to $30 billion. That could pave the way for interest rate hikes as soon as the spring of 2022 and mark the latest Fed policy pivot under Chairman Jerome Powell.
"Another upside surprise to core inflation just ahead of the December meeting would likely add further conviction to a Fed that has recently become seemingly more focused on the price stability side of its mandate," Citi economist Veronica Clark wrote. A stronger than expected print "could create an even greater sense of urgency for the Fed to react to high inflation through possibly earlier rate hikes."
On Thursday, the Labor Department reported initial claims for unemployment insurance totaled 184,000, compared to the 211,000 estimated by economists surveyed by Dow Jones.
Ed Moya, senior market analyst with Oanda, said that the market is in a wait-and-see mode ahead of Friday's inflation report.
"While growth and labor markets have provided reasons to be optimistic about the economy, inflation is also running hot and sits at a 30-year high," UBS wrote in a recent note to clients. "With the omicron variant entering the picture, investors are now questioning what monetary policy will look like going forward. The pandemic has already greatly increased the uncertainty over the economic outlook," the firm added, noting that its base case is that the Fed will be patient.
Elsewhere, the price of bitcoin fell nearly 6% to $47,816.07 late Thursday. On Wednesday, executives from six of the largest cryptocurrency companies testified before the U.S. House Financial Services Committee. Bitcoin, which hit its all-time high about a month ago, has struggled to hold above the $50,000 level after its crash last weekend. That sharp decline coincided with investors' urge to shed risky assets more broadly.
There are some notable earnings reports on Thursday, including from Oracle, Broadcom and Lululemon, all of which report after the market closes.
— CNBC's Jeff Cox contributed reporting.