NEW YORK (Reuters) -A gauge of global stocks was set for its biggest weekly drop in two months and the 10-year U.S. Treasury yield hit its highest level in 5-1/2 months on Friday as economic data and comments from Federal Reserve officials suggested a slower pace of interest-rate cuts ahead.
Fed Chair Jerome Powell said on Thursday the central bank did not need to rush to lower interest rates due to ongoing economic growth, a solid job market and inflation that remains above its 2% target.
The U.S. Commerce Department reported on Friday that retail sales rose 0.4% last month after an upwardly revised 0.8% advance in September. The growth topped the 0.3% rise expected by economists polled by Reuters, after a previously reported 0.4% gain in September.
"In the last 48 hours we've had some pretty big changes, not just from the election but from economic data that was better than expected and Powell speaking about not having to be as aggressive on interest-rate cuts," said Adam Rich, deputy chief investment officer for Vaughan Nelson in Houston.
Market expectations for interest-rate cuts have come down materially and also the market is re-adjusting after a pretty bullish reaction to the U.S. election.
In addition, the Labor Department said on Friday that import prices unexpectedly rose 0.3% last month after an unrevised 0.4% decline in September amid higher prices for fuels and other goods. Analysts had expected a decline of 0.1%.
Equities had rallied after the U.S. presidential election, as investors gravitated toward assets expected to benefit from President-elect Donald Trump's policies in his second term after he pledged to impose higher tariffs on imports, reduce taxes and loosen government regulations.
But the gains have fizzled in recent days as markets try to calibrate the Fed's rate-cut trajectory and any legislative policy changes.
On Wall Street, the Dow Jones Industrial Average fell 305.87 points, or 0.70%, to 43,444.99, the S&P 500 fell 78.55 points, or 1.32%, to 5,870.62 and the Nasdaq Composite fell 427.53 points, or 2.24%, to 18,680.12. Each of the three major indexes closed at record highs on Monday.
For the week, the S&P 500 fell 2.08%, the Nasdaq declined 3.15%, and the Dow lost 1.24%.
Other Fed officials made comments on Friday that also clouded the picture on the timing and magnitude of more rate cuts.
MSCI's gauge of stocks across the globe slumped 8.53 points, or 1.00%, to 842.67. It was on track for its fourth-straight decline and biggest weekly percentage decline since early September, around 2.4%.
In Europe, the STOXX 600 index closed down 0.77% but eked out a small weekly gain, its first in four weeks.
Bond yields and the dollar have surged not just on growth prospects but also on concerns that Trump's policies may rekindle inflation after a long battle against price pressures following the pandemic. In addition, tariffs could lead to increased government borrowing, further ballooning the fiscal deficit and potentially causing the Fed to alter its course of monetary-policy easing.
The dollar index, which tracks the U.S. currency against peers including the euro and Japan's yen, was 0.12% lower on the day to 106.75 with the euro off 0.02% at $1.0528.
The greenback had risen for five straight sessions and was poised for its biggest weekly percentage gain since early October.
Against the Japanese yen, the dollar weakened 1.24% to 154.31. Sterling was down 0.45% to $1.2608.
Expectations for a 25-basis-point cut at the Fed's December meeting stood at 58.4% on Friday, down from 72.2% in the prior session, and 85.5% a month ago, according to CME's FedWatch Tool.
The yield on benchmark U.S. 10-year notes rose 1.9 basis points to 4.439% after earlier reaching 4.505%, its highest level since May 31. The yield is up about 13 bps this week and is set for its eighth weekly rise in the past nine.
U.S. crude settled down 2.45% to $67.02 a barrel and Brent fell to settle at $71.04 per barrel, down 2.09% on the day, as investors digested a slower Fed rate-cut path and waning Chinese demand.
(Reporting by Chuck Mikolajczak, additional reporting by Sinéad Carew; Editing by Leslie Adler and Rod Nickel)