Stocks closed lower on Thursday, with the Dow and S&P 500 extending losses into a fifth day, after data showed the economy growing more rapidly than expected, adding to thoughts that the Federal Reserve would begin to reduce its stimulus sooner than speculated.
"Unless something kills this economy, the Fed has to taper," said David Kelly, chief market strategist at J.P. Morgan Funds, referring to the central bank's $85 billion per month bond-buying program that has buoyed markets recently.
Friday's non-farm payrolls report could have the unemployment rate falling from 7.3 percent, Kelly said. "We could see a rate as low as 7.0 percent. If that happens, it's going to put further pressure on the Fed to begin unwinding this program, and further increases the odds that it happens at the January meeting," he added.
"If I were a bookmaker at the Fed race track setting odds, the odds-on favorite is January, followed by December, with March the long odds," said Kelly, whose point of view differs from the March estimate offered by many.
The Dow Jones Industrial Average fell 68 points, with Microsoft leading blue-chip losses amid speculation that Alan Mulally would not be leaving Ford Motor to replace Steve Ballmer as chief executive of the software company.
"The stock market is taking a breather here, as a lot of investors and fund managers of various kinds would like to lock in gains," said Kelly, referring to a yearly advance that has the S&P 500 up more than 25 percent.
The S&P 500 also declined 7 points, with telecommunications leading the losses that included all of its 10 major sectors. After wavering between small gains and losses, the Nasdaq fell 4 points.
The yield on the 10-year Treasury note climbed 4 basis points to 2.87 percent and the dollar edged higher against the currencies of major U.S. trading partners.
The CBOE Volatility Index (VIX), a gauge of investor uncertainty, rose 2.5 percent to just over 15.
Energy prices rose, with crude futures rising 18 cents, or 0.2 percent, to $97.38 a barrel. Gold futures fell $15.30, or 1.2 percent, to $1,231.90 an ounce.
Thursday's economic reports had the U.S. economy expanding at a 3.6 percent pace, up from an initial estimate of 2.8, the Commerce Department said.
The Fed has said it would begin reducing the rate of its stimulus spending if the economic growth is deemed healthy enough to withstand the tapering. The central bank starts its next two-day policy meeting on Dec. 17, although most analysts have expected policy makers to hold off until the March Federal Open Market Committee meeting before starting to cut its monthly bond purchases.
"On balance, today's GDP report most likely will not be strong enough given the mix of factors behind the report to cause the Fed to begin to announce an immediate tapering of the Fed's bond buy program when the FOMC meets later this month," wrote Fred Dickson, chief investment strategist at Davidson Companies, in emailed commentary.
Separately, the Labor Department reported claims for unemployment benefits declined by 23,000 to 298,000 last week.
A third report had U.S. factory orders falling 0.9 percent in October.
In a speech in Florida, Fed Bank of Atlanta President Dennis Lockhart said when discussing cuts in stimulus, the central bank should be as specific as possible about the level of its asset purchases and the timing of its plans for tapering.