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Fed's Waller flags risk of inflation going too low

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FedEx ( FDX ) falls on quarterly profit drop, forecast trim

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Nike ( NKE ) jumps after appointing new CEO

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Indexes down: Dow 0.22%, S&P 500 0.49%, Nasdaq 0.61%

(Updated at 2:38 p.m. ET/1838 GMT)

By Chuck Mikolajczak

NEW YORK, Sept 20 (Reuters) - U.S. stocks dipped on

Friday, as investors paused after a strong rally in the prior

session that was fueled by an upsized interest-rate cut by the

Federal Reserve.

After notching their biggest daily percentage gains since

mid-August, the S&P 500 and the Dow held close to record highs

and, along with the Nasdaq, were poised for weekly gains of at

least 1%.

Stocks briefly pared losses after comments from Fed Governor

Christopher Waller increased expectations the central bank will

cut interest rates by 50 basis points at its November meeting,

having just cut by 50 bps on Wednesday.

Fellow Governor Michelle Bowman, however, maintained that a

smaller Fed cut this week would have been preferred.

"The market is still trying to recalibrate because, yes,

there were some market participants that may have expected 50

basis points but a lot of people didn't," said Sid Vaidya, U.S.

chief wealth strategist at TD Wealth in New York.

"You have to be a little bit more selective and measured

just because we are expecting growth to slow down a little bit

and valuations, especially in large-cap growth, are a bit

stretched so you want to be a bit selective."

The Dow Jones Industrial Average fell by 93.70

points, or 0.22%, to 41,931.84, the S&P 500 lost 28.24

points, or 0.49%, to 5,685.40 and the Nasdaq Composite

lost 109.51 points, or 0.61%, to 17,904.48.

Markets are fully pricing in a cut of at least 25 bps in

November, with expectations for a cut of 50 bps given a 48.9%

chance, according to CME's FedWatch Tool.

Nine of the 11 major S&P sectors were lower, with

industrials the worst-performing.

Utilities surged, however, led by a jump of 21.58%

in Constellation Energy ( CEG ) after the company signed a data

center deal with Microsoft ( MSFT ) to help resurrect a unit of

the Three Mile Island nuclear plant in Pennsylvania.

The Fed began its monetary-easing cycle on Wednesday and

projected a period of steady economic growth and low

unemployment and inflation.

Options and futures linked to stock indexes and individual

stocks are set to expire simultaneously on Friday in an event

known as "triple witching," which could exacerbate late-day

volatility.

FedEx ( FDX ) plunged 13.92% after lowering its full-year

revenue forecast, sending the Dow Jones Transport index

down 3.39%.

Nike ( NKE ) jumped 5.55% after saying former senior

executive Elliott Hill will rejoin the company to succeed John

Donahoe as CEO.

Historically, equities have performed well in a rate-cutting

environment. However, the outlook appears bleak with the S&P

500's valuations high above its long-term average.

Declining issues outnumbered advancers by a 2.06-to-1 ratio

on the New York Stock Exchange and by a 2.18-to-1 ratio on the

Nasdaq.

The S&P 500 posted 26 new 52-week highs and one new low

while the Nasdaq Composite recorded 82 new highs and 86 new

lows.