The benchmark S&P 500 erased earlier marginal gains after a Wall Street Journal report on the Fed's plans. According to the report, while the U.S. central bank is not prepared to make a bigger 50-basis-point cut, it may make further rate cuts in the future given concerns about a decline in global economic growth and uncertainty about trade.
On Thursday, stocks had risen as comments from New York Fed President John Williams increased hopes of a bigger rate cut. Later that day, however, a New York Fed representative said Williams' comments were not intended to telegraph any hints about upcoming Fed policy actions.
"It appears that the Fed has communicated its message," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama. "They're basically trying to clarify their policy."
Futures market odds of a 50-basis-point cut at the Fed's July meeting soared to 71% late Thursday immediately after Williams' speech but fell to 22.5% on Friday, according to CME Group's Fedwatch tool.
The expiration of options on Friday likely amplified the market reaction to the report, said Dennis Dick, head of markets structure at Bright Trading LLC in Las Vegas.
"It's been one of those days where you get a lot of chop," he said. "This is often on the third Friday of the month. The traders are expecting this."
The Dow Jones Industrial Average fell 68.77 points, or 0.25%, to 27,154.2, the S&P 500 lost 18.5 points, or 0.62%, to 2,976.61 and the Nasdaq Composite dropped 60.75 points, or 0.74%, to 8,146.49.
For the week, the Dow lost 0.64%, the S&P fell 1.23% and the Nasdaq shed 1.19%.
Earlier on Friday, U.S. stocks had edged higher as strong results from Microsoft Corp momentarily buoyed technology stocks. Microsoft shares ended marginally higher, up 0.1%, but the S&P 500 technology index <.SPLRCT> fell 0.55%.
Second-quarter profits at S&P 500 companies are now estimated to rise 1%, according to Refinitiv IBES data, in a reversal from earlier expectations of a small drop.
Boeing Co shares gained 4.5%, despite the planemaker's disclosure that it would take a $4.9 billion after-tax hit from the grounding of its 737 MAX, indicating that investors had expected more severe repercussions.
Kansas City Southern shares rose 4.6% after the railroad operator posted a better-than-expected quarterly profit. Its shares helped the Dow Jones Transport index <.DJT> gain 0.6%.
Shares of American Express Co slipped 2.8% after the credit card issuer warned of higher operating costs this year as it spends heavily on rewards programs to attract customers.
Declining issues outnumbered advancing ones on the NYSE by a 1.29-to-1 ratio; on Nasdaq, a 1.51-to-1 ratio favored decliners.
The S&P 500 posted 45 new 52-week highs and five new lows; the Nasdaq Composite recorded 75 new highs and 84 new lows.
Volume on U.S. exchanges was 6.25 billion shares, compared to the 6.59 billion average for the full session over the last 20 trading days.
(Reporting by Evan Sully and April Joyner; Additional reporting by Chuck Mikolajczak in New York and Medha Singh and Uday Sampath in Bengaluru; Editing by Sonya Hepinstall and Tom Brown)
By Evan Sully and April Joyner