By Sruthi Shankar
(Reuters) - U.S. stocks edged lower on Thursday after Federal Reserve Chairman Jerome Powell said the central bank would continue unwinding its balance sheet, adding to weakness in the markets under pressure from a retail selloff.
While Powell reiterated the views of other policymakers that the Fed would be patient about interest rate hikes, he said the bank's balance sheet would be "substantially smaller" and raised concerns about the size of U.S. debt.
"He reiterated his statements that helped the market a few days ago which was that the Fed is not on a preset course to hike rate," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin.
"But he also made a statement about the amount of budget deficit and the national debt rising and that's what spooked the market a little bit. It's more of a commentary on the entire economy as a whole."
The S&P 500 is on track to end a four-day rally, which was sparked by a strong U.S. jobs data, easing fears of higher interest rates and rising hopes of a trade deal.
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However, trade-related optimism faded on Thursday as China offered little details on key issues such as forced technology transfers, intellectual property rights, tariff barriers and cyber attacks.
The lack of clarity, coupled with weak economic data in China and France, rekindled worries about global growth.
Closer home, reports from Macy's and American Airlines added to fears of corporate profit growth shrinking, which was exacerbated after Apple's sales warning last week.
"Most of what's driving the pullback is headline risks on the lack of a formal trade policy deal," said Matt Forester, chief investment officer at BNY Mellon's Lockwood Advisors in King of Prussia, PA.
"We're about to go into the earnings season and it's going to be a tug of war between relatively good results versus what the forward guidance is going to look like."
Macy's Inc plunged 18.9 percent after the department store operator cut same-store sales forecast for the full-year due to weak demand during mid-December.
The report, along with that of Kohl's Corp and others, pushed the S&P 500 retailers index <.SPXRT> 1.23 percent lower.
At 1:48 p.m. ET the Dow Jones Industrial Average was down 38.89 points, or 0.16 percent, at 23,840.23, the S&P 500 was down 6.66 points, or 0.26 percent, at 2,578.30 and the Nasdaq Composite was down 25.05 points, or 0.36 percent, at 6,932.02.
The trade-sensitive industrial stocks <.SPLRCI> however rose 0.54 percent, lifted by Boeing Co , which gained 1.8 percent after the U.S. Air Force accepted its long-delayed KC-46 air tanker.
American Airlines Group Inc fell 6.1 percent after the No.1 U.S. carrier cut its fourth-quarter profit and unit revenue forecasts. That weighed on other airlines as well.
Declining issues outnumbered advancers for a 1.22-to-1 ratio on the NYSE and for a 1.42-to-1 ratio on the Nasdaq.
The S&P index recorded no new 52-week highs and one new low, while the Nasdaq recorded 17 new highs and 9 new lows.
(Reporting by Sruthi Shankar and Medha Singh in Bengaluru; Editing by Saumyadeb Chakrabarty and Arun Koyyur)