Wall Street lower as rate hike uncertainty returns

US stocks dropped on Friday, with investors again focusing on when the Federal Reserve will hike interest rates next and with the corporate earnings season winding down.

Investors were also cagey ahead of next week's annual meeting of central bankers from around the world in Jackson Hole, Wyoming, in which Fed Chair Janet Yellen is likely to cement expectations for a slow pace of rate increases.

Recent hawkish comments from two Fed officials have clashed with the central bank's position that more data is needed before rates can be raised, according to the minutes of the Fed's July meeting released this week.

"There is a bit on uncertainty over the Fed's decision and Yellen's speech next week is motivating investors to take some money off the table," said Peter Cardillo, chief market economist at First Standard Financial in New York.

The benchmark S&P 500 index is up 7% this year. Its recent run to record highs has been partly supported by expectations that the Fed will continue to keep rates low, as well as some upbeat earnings and economic news.

"It is typical to expect a retreat at these levels with volumes remaining muted," Cardillo said.

Traders are pricing in a 43.1% chance of a rate hike this December, according to CME Group's FedWatch Tool.

At 9:35 a.m. ET (1335 GMT) the Dow Jones Industrial Average was down 79.58 points, or 0.43%, at 18,518.12.

The S&P 500 was down 8.47 points, or 0.39%, at 2,178.55.

The Nasdaq Composite was down 15.83 points, or 0.3%, at 5,224.31.

All 10 major S&P sectors were lower between 0.2% and 1.4%, led by the defensive sectors. The telecoms index was down 1.42% and the utility index was down 0.84%.

Energy stocks fell 0.7% as Brent crude oil dropped after hitting an eight-week high, with weak fundamentals countering a lift in sentiment over talks next month on a possible output freeze. [O/R]

Applied Materials was up 4.3% at $28.86 after the chip equipment maker's current-quarter revenue and profit forecasts topped analysts' estimates.

Estee Lauder was down 3.1% at $92.14 as the cosmetics maker's quarterly sales rose less than expected.

Deere was up 4.1% at $80.10 after the farming machinery maker raised its full-year profit outlook.

Declining issues outnumbered advancing ones on the NYSE by 1,925 to 628. On the Nasdaq, 1,481 issues fell and 746 advanced.

The S&P 500 index showed 5 new 52-week highs and no new lows, while the Nasdaq recorded 21 new highs and 5 new lows.