Wall Street's major indexes closed lower on Thursday with Nasdaq's 2.5 per cent drop leading the losses as investors took profits, particularly in technology stocks after a three-day rally, while multiple Federal Reserve officials were out talking about inflation and interest rate hikes.
Interest-rate sensitive growth stocks such as technology lagged the broader market in the last session before the fourth-quarter earnings season starts in earnest. The S&P's technology index fell 2.7 per cent while consumer discretionary fell two per cent.
Several Fed officials spoke publicly about battling high inflation with Lael Brainard the latest, and most senior, US central banker signalling that the Fed was getting ready to start raising rates in March.
Other officials, including Chicago Fed President Charles Evans, talked about the need for tighter policy while Philadelphia Fed President Patrick Harker also discussed a March rate hike after San Francisco Fed President Mary Daly had mentioned a March lift-off late on Wednesday.
"When Brainard says we've got to do something, they're going do something," said Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Mass. He said Brainard's comments were particularly striking coming from one of the Fed's most dovish officials.
"There doesn't seem to be much debate left within the Fed about what direction they're going, and not even much about how fast they should get there," he added.
The Dow Jones Industrial Average fell 176.7 points, or 0.49 per cent, to 36,113.62, the S&P 500 lost 67.32 points, or 1.42 per cent, to 4,659.03 and the Nasdaq Composite dropped 381.58 points to 14,806.81.
Nasdaq's decline its biggest one-day percentage loss since January 5 when it fell 3.4 per cent in a single session after hawkish Fed minutes were released for the December meeting. It did not help that Thursday's rate hike talk had followed the technology-laden Nasdaq's 1.7 per cent advance in this week's first three sessions.
Even though US Treasury 10-year yields fell on Thursday, investors focused on profit taking, said Sameer Samana, senior global market strategist at Wells Fargo 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.
Samana described Brainard's comments as "a psychological hit to those hoping that there was some dissent to starting rate hikes sooner rather than later".
Wells Fargo followed Goldman Sachs, JPMorgan and Deutsche Bank in forecasting that the Fed might raise interest rates four times this year.
Adding some anxiety for investors, US companies are due to report results on the final quarter of 2021 in the coming weeks with banks JPMorgan Chase, Citigroup and Wells Fargo set to start 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 per cent, according to IBES data from Refinitiv.
Retail investors have also raised their exposure to bank stocks ahead of the earnings announcements, according to Vanda Research's weekly report on retail flows.
Delta Air Lines closed up two per cent at $US41.47 ($A56.90) 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 2.6 per cent for the day.
Earlier Data showed the producer price index (PPI) rose 0.2 per cent last month after advancing 0.8 per cent in November while in the 12 months through December, the PPI rose 9.7 per cent versus the 9.8 per cent 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.
Declining issues outnumbered advancing ones on the NYSE by a 1.27-to-1 ratio; on Nasdaq, a 2.24-to-1 ratio favoured decliners.
The S&P 500 posted 44 new 52-week highs and no new lows; the Nasdaq Composite recorded 75 new highs and 360 new lows.
On US exchanges 10.43 billion shares changed hands compared with the 10.39 billion average over the last 20 sessions.