Wall Street's main indexes closed lower on Friday, with the S&P 500 and Nasdaq recording their biggest one-day losses in two weeks. The market's reaction was driven by concerns about slower interest-rate cuts and the reaction to cabinet picks by U.S. President-elect Donald Trump.

Federal Reserve Chair Jerome Powell cited ongoing economic growth, a solid job market, and inflation above the U.S. central bank's 2% target as reasons for the cautious approach to future rate cuts.

Traders increased bets that the Fed will not change rates at its December meeting, pricing in a roughly 42% chance, versus roughly 14% a month ago. This view was reinforced by Friday's economic data showing U.S. retail sales rose slightly more than expected in October. Import prices also rebounded and data released on Wednesday and Thursday showed sticky inflation.

Adam Rich, deputy chief investment officer for Vaughan Nelson in Houston, noted that the market expectations for interest rate cuts have come down materially and the market is readjusting after a bullish reaction to the U.S. election.

Market Shifts and Weekly Losses

The sell-off ended a week in which market focus shifted from the U.S. election win by Trump, seen as a pro-business choice, to worries about the rate cut path and potential inflation risks under the next administration. For the week, the S&P 500 fell 2.08% while the Nasdaq declined 3.15%, marking their biggest weekly losses in more than two months. The Dow fell 1.24% for the week.

John Augustine, chief investment officer at Huntington National Bank, pointed out that people are taking profits because this has been a good month. U.S. stocks have been doing well this month. But it's not blanket profit taking, suggesting more of a rotation.

Stocks of vaccine makers and packaged food companies also dipped after Trump said he would nominate Robert F Kennedy Jr, who has spread misinformation on vaccines and criticized ultra-processed foods, to head the Department of Health and Human Services.

The Dow Jones Industrial Average fell 305.87 points, or 0.70%, to 43,444.99, the S&P 500 lost 78.55 points, or 1.32%, to 5,870.62 and the Nasdaq Composite dropped 427.53 points, or 2.24%, to 18,680.12.

Market Volatility and Future Outlook

Shares of defense firms and government contractors also fell, partly on concerns about Trump's picks earlier this week to head a new Department of Government Efficiency. Among the S&P 500's 11 major industry sectors, information technology was the day's biggest loser, dropping 2.5%.

The Philadelphia SE Semiconductor index fell 3.4% with Applied Materials tumbling 9.2% after the U.S. maker of chip-manufacturing equipment forecast first-quarter revenue below Wall Street estimates.

Shares in Moderna dropped 7.3% and Pfizer fell 4.7%, weighing on healthcare, which closed down 1.88% after hitting its lowest since May in its fifth straight day of declines. The Consumer staples index, which finished off 0.8%, was also hurt by the nomination news.

Among its biggest decliners, Monster Beverage fell 7%, Lamb Weston lost 6% and Keurig Dr Pepper dropped 5% to its lowest level since April.

Adding to Friday's volatility was the regular expiration of stock and index options, according to Vaughan Nelson's Rich. Brent Kochuba, founder of financial insights company SpotGamma, said Friday's stock market weakness was partly due to investors being ill-prepared for a pullback.

CBOE's volatility index, also known as Wall Street's fear gauge, hit 17.55 earlier on Friday, the highest since Election Day on Nov. 5. However, the index pared gains to close at 16.14.