By Stephen Culp
NEW YORK (Reuters) -U.S. stocks ended sharply lower on Thursday as enthusiasm over Nvidia (NASDAQ:NVDA)'s quarterly results faded and robust economic data fueled concerns over tighter-for-longer monetary policy.
U.S. Treasury yields turned higher after the data.
All three major U.S. stock indexes gathered downward momentum in afternoon trading, ending the session deep in red territory.
The blue-chip Dow suffered the worst of it, closing down 1.5%.
Technology stocks were the sole gainers among the S&P 500's 11 major sectors.
"The market is at all-time highs, valuations are stretched, and we're coming off the sugar high of (Wednesday) night's Nvidia report," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
"You've seen it after Fed reports, you've seen it after a handful of really important data releases - and I think it's the same with the NVIDIA earnings - you get this initial kind of pop or sell-off associated with the initial reaction, and then the market digests it, recalibrates to where expectations were," Mayfield added.
Technology shares were given a jolt of adrenaline by Nvidia, the megacap chipmaker at the forefront of AI optimism, when the company forecast quarterly revenue above estimates and announced a stock split.
On the economic front, jobless claims dropped and S&P Global's Flash PMI survey showed U.S. business activity has expanded faster than economists forecast in May.
The data is primarily viewed through the lens of the Fed, the timing of its first interest rate cut, and whether the central bank can rein in inflation without triggering recession.
"Flash PMI came in hotter than expected, which put a feather in the cap of hawks," Mayfield added. "So the thinking has shifted away from Nvidia to thinking about rates and 'higher for longer.'"
The Dow Jones Industrial Average fell 605.78 points, or 1.53%, to 39,065.26, the S&P 500 lost 39.17 points, or 0.74%, to 5,267.84 and the Nasdaq Composite dropped 65.51 points, or 0.39%, to 16,736.03.
European shares pared earlier gains to end only nominally higher, as optimism over Nvidia's strong forecast was tempered by lowered rate cut expectations.
The pan-European STOXX 600 index rose 0.07% and MSCI's gauge of stocks across the globe shed 0.57%.
Emerging market stocks lost 0.43%. MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.38% lower, while Japan's Nikkei rose 1.26%.
U.S. Treasury yields turned higher after data suggested U.S. business activity has picked up and the labor market remains tight, supporting the Fed's "higher for longer" interest rate narrative.
Benchmark 10-year notes last fell 12/32 in price to yield 4.4787%, from 4.434% late on Wednesday.
The 30-year bond last fell 18/32 in price to yield 4.5844%, from 4.55% late on Wednesday.
The dollar gained ground against a basket of world currencies following the economic data.
The dollar index rose 0.13%, with the euro down 0.13% to $1.0807.
The Japanese yen weakened 0.06% versus the greenback at 156.89 per dollar, while Sterling was last trading at $1.269, down 0.20% on the day.
Crude oil prices reversed earlier gains to notch their fourth consecutive session as the notion of interest rates staying restrictive for longer than expected raised the possibility of weakening U.S. demand.
U.S. crude dipped 0.90% to settle at $76.87 per barrel, while Brent settled at $81.36 per barrel, down 0.66% on the day.
Gold prices dropped to a one-week low in the aftermath of the Fed minutes' release.
Spot gold dropped 2.0% to $2,331.23 an ounce.