By Ankika Biswas and Shreyashi Sanyal
(Reuters) -Wall Street slipped on Thursday as a contraction in manufacturing activity last month clouded data showing a mild easing in inflation and solid consumer spending, while a fall in Salesforce shares dragged the Dow lower.
U.S. manufacturing activity shrank for the first time in 2-1/2 years in November as higher borrowing costs weighed on demand for goods, and proved to be a trigger for investors to book profits following a rally in the previous session.
"Yesterday's move was so crazy large, this is probably just some natural profit taking," Rusty Vanneman, chief investment strategist at Orion Advisor Solutions, said.
Federal Reserve Chair Jerome Powell said on Wednesday it was time to slow down coming interest rate hikes, while also signaling a protracted economic adjustment amid high borrowing costs, pushing the S&P 500 index above its 200-day moving average for the first time since April.
Markets were boosted earlier on Thursday following a reading from the Commerce Department, which showed consumer spending, that accounts for more than two-thirds of U.S. economic activity, rose 0.8% after an unrevised 0.6% increase in September.
The core personal consumption expenditure (PCE) index, excluding volatile items, eased to 0.2%, against expectations of 0.3%.
"Obviously the (manufacturing) sector is in recession and this basically upholds the fact that we're headed for a recession," said Peter Cardillo, chief market economist at Spartan Capital Securities.
Traders still see a 91% chance that the Fed will increase its key benchmark rate by 50 basis points in December, with the terminal rate expected to be under 5% in May 2023. [FEDWATCH]
Weighing the most on the Dow Jones Industrial Average was Salesforce Inc, which tumbled 9.9% after the software maker said Bret Taylor would step down as co-chief executive officer in January.
Dollar General Corp (NYSE:DG) fell 8.7% after the discount retailer cut its annual profit forecast, while Costco Wholesale Corp (NASDAQ:COST) shed 6.6% after the membership-only retail chain reported slower sales growth in November.
Investors now await nonfarm payrolls data on Friday, with the ADP (NASDAQ:ADP) report on Wednesday suggesting cooling demand for labor.
Separately, a report from the Labor Department on Thursday showed initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 225,000 for the week ended Nov. 26.
At 12:16 p.m. ET, the Dow Jones Industrial Average was down 330.81 points, or 0.96%, at 34,258.96, the S&P 500 was down 17.02 points, or 0.42%, at 4,063.09, and the Nasdaq Composite was down 35.31 points, or 0.31%, at 11,432.69.
Most megacap growth stocks such as Alphabet (NASDAQ:GOOGL) Inc, Apple Inc (NASDAQ:AAPL), Microsoft Corp (NASDAQ:MSFT), Meta Platforms Inc and Tesla (NASDAQ:TSLA) Inc were mixed, while 3% gains in Netflix Inc (NASDAQ:NFLX) limited falls on the Nasdaq.
Advancing issues outnumbered decliners for a 1.29-to-1 ratio on the NYSE and a 1.02-to-1 ratio on the Nasdaq.
The S&P index recorded 29 new 52-week highs and no new low, while the Nasdaq recorded 83 new highs and 49 new lows.