US STOCKS-Wall Street dips after rally as earnings, data eyed

Updates to afternoon U.S. trading

By Chuck Mikolajczak

NEW YORK, Jan 16 (Reuters) - U.S. stocks were modestly lower on Thursday, swaying between slight gains and declines after a jump in the prior session, as investors eyed the most recent corporate earnings and gauged economic data to determine the path of Federal Reserve rate cuts.

A benign reading on inflation calmed fears about a renewal in price pressures and strong bank earnings helped the three major U.S. indexes notch their biggest one-day percentage gain since Nov. 6 on Wednesday.

Economic data on Thursday indicated consumer spending remains strong, while the labor market is also on solid footing, given the Fed's cushion to keep a slow pace in cutting interest rates this year.

"The market breathed a pretty good sigh of relief yesterday. Now January's undecided, but at least on a little bit better footing to see where we end up, and we can look at some more data and some earnings and see how that's all going to turn out," said Rick Pitcairn, chief global strategist at Philadelphia-based Pitcairn.

"On the other positive side of this market, the bank earnings have been strong, and those are bellwether earnings, and to the extent that you've got a steepening yield curve, you've got some strong earnings come out of the banks, they're looking forward and not talking their numbers down. The market's taken a little courage from that."

Morgan Stanley MS.N advanced 2.73% after the lender said earnings increased in the fourth quarter, propelled by a wave of dealmaking, while Bank of America BAC.N lost 1.93%. The country's second-largest bank predicted higher interest income in 2025.

The Dow Jones Industrial Average .DJI fell 84.62 points, or 0.20%, to 43,134.15, the S&P 500 .SPX lost 9.53 points, or 0.16%, to 5,940.38 and the Nasdaq Composite .IXIC lost 114.09 points, or 0.59%, to 19,396.71.

Investors also focused on comments from Fed Governor Christopher Waller, who said the central bank could cut rates sooner and faster than expected as inflation is likely to continue to ease, which helped push Treasury yields lower.

The yield on the 10-year Treasury note US10YT=RR was last down 5.9 basis points (bps) to 4.594% and rate futures were pricing in a greater chance for a rate cut of at least 25 basis points to come at the Fed's May meeting.

Stocks have struggled following a post-U.S. election rally, with the S&P 500 falling in four of the previous five weeks. A resilient economy, nagging inflation and comments from Federal Reserve policymakers have fanned worries about the central bank being less aggressive in cutting interest rates than previously anticipated.

Concerns linger about potential tariffs from President-elect Donald Trump, scheduled to take office on Monday, that would further stoke inflation.

Trump's pick for Treasury Secretary, Scott Bessent, said the dollar should remain the world's reserve currency, the Federal Reserve should stay independent, and that he is ready to impose tougher sanctions on Russia's oil sector, while warning of an "economic calamity" if Trump's 2017 tax cuts expired at the end of this year.

UnitedHealth UNH.N, down 5.45%, weighed on the Dow after the health insurer reported fourth-quarter revenue below estimates.

Advancing issues outnumbered decliners by a 1.68-to-1 ratio on the NYSE and by a 1.04-to-1 ratio on the Nasdaq.

The S&P 500 posted 19 new 52-week highs and nine new lows, while the Nasdaq Composite recorded 56 new highs and 93 new lows.

(Reporting by Chuck Mikolajczak, additional reporting by Johann M Cherian, Medha Singh, Shashwat Chauhan and Sukriti Gupta in Bengaluru; Editing by Aurora Ellis)

((charles.mikolajczak@tr.com; @ChuckMik;))