US STOCKS-Equities dip after Powell raises valuation concerns

By Chuck Mikolajczak

NEW YORK, Sept 24 (Reuters) - U.S. stocks retreated on Wednesday, as investors booked profits with indexes near record levels after Federal Reserve Chair Jerome Powell flagged potentially stretched stock prices and ahead of a reading on inflation later in the week.

Investors are trying to gauge the path of rate cuts from the central bank as it attempts to support an economy that has shown signs of a flagging labor market and the possibility of rising inflation.

With each of the three major indexes, along with the small-cap Russell 2000, closing at record highs simultaneously for the first time in years earlier this week, Powell said on Tuesday that asset prices appeared fairly highly valued. As his colleagues staked out arguments on both sides of the policy divide, the Fed chair emphasized the tightrope the central bank must walk in upcoming policy decisions.

To some analysts, the comments were reminiscent of those by former Fed Chair Alan Greenspan, who said in a 1996 speech that "irrational exuberance" had pushed up asset values.

Last week's Fed rate cut helped lift equities in September, typically a weak month for stocks, with investors now banking on further easing to keep the rally alive.

"With the S&P pricing in 23-24 times expected earnings and expectations priced in to that multiple of about 15% annualized earnings growth over the next five years, that sounds pretty rich to me," said Ron Albahary, chief investment officer at LNW in Philadelphia.

"So not that we're market timers at all, but the idea that people might be using this, using the Fed's comments, Powell's comments as just a reason to trim back a little bit makes sense to me."

The Dow Jones Industrial Average .DJI fell 164.77 points, or 0.36%, to 46,128.01, the S&P 500 .SPX lost 27.91 points, or 0.42%, to 6,629.32 and the Nasdaq Composite .IXIC lost 112.89 points, or 0.50%, to 22,460.90.

Some valuation measures for stocks are at their highest level since 2021, and a further climb would elevate them to thresholds not seen in decades, since the height of the internet boom.

Materials .SPLRCM was the worst-performing of the S&P 500 sectors, as Freeport-McMoRan FCX.N plunged more than 15% after it declared force majeure at its Grasberg mine in Indonesia and said it is expecting consolidated sales to be lower for copper and gold in the third quarter.

On the plus side, the S&P 500 energy index .SPNY rose 1.6% as the best performing sector, tracking higher crude prices, which rose to a seven-week high after a surprise drop in U.S. weekly crude inventories.

Data released on Wednesday showed the sales of freshly constructed single-family U.S. homes USHNS=ECI unexpectedly surged by 20.5% in August.

Lithium Americas' LAC.N U.S.-listed shares nearly doubled after Reuters reported on Tuesday that President Donald Trump's administration was seeking an equity stake of up to 10% in the company.

Talks are under way to discuss a government loan exceeding $2.26 billion for the company's Thacker Pass lithium project with General Motors GM.N, which rose 1.6%. UBS also upgraded the automaker to "buy" from "neutral."

Micron Technology MU.O shed 3% after the memory chipmaker reported quarterly results.

Oracle ORCL.N declined 3% after Bloomberg News said the company was looking to raise $15 billion in corporate bond sales.

Investors will now focus on personal consumption expenditures data, the Fed's preferred inflation gauge, due for release later this week.

Declining issues outnumbered advancers by a 1.82-to-1 ratio on the NYSE and by a 1.45-to-1 ratio on the Nasdaq.

The S&P 500 posted 21 new 52-week highs and eight new lows, while the Nasdaq Composite recorded 80 new highs and 48 new lows.