By Herbert Lash

NEW YORK (Reuters) – Stocks on Wall Street closed lower on Thursday as investors shifted out of big technology names, while an unexpected rise in weekly U.S. jobless claims pointed to a fragile recovery in the labor market.

Shares of Apple Inc, Tesla Inc and Facebook Inc weighed the most on both the benchmark S&P 500 and the tech-heavy Nasdaq.

Facebook shares dropped 1.5% to $269.39 as Wall Street assessed the wider ramifications of its move to block all news content in Australia.

The Dow Jones Industrial Average fell 119.68 points, or 0.38%, to 31,493.34, the S&P 500 lost 17.36 points, or 0.44%, to 3,913.97 and the Nasdaq Composite dropped 100.14 points, or 0.72%, to 13,865.36.

Volume on U.S. exchanges was 13.13 billion shares.

Strong earnings, progress in the vaccination rollout and hopes of a $1.9 trillion federal stimulus package helped U.S. stock indexes again hit record highs at the start of the week.

But the months-long rally suggests stocks now have high valuations, said Jason Pride, chief investment officer for private wealth at Glenmede in Philadelphia.

“We are still in the cautiously bullish environment for the market on the whole,” Pride said, citing two reasons.

“We’re going to get a vaccine-induced economic recovery, that’s No. 1. The flip side of that story is the markets have largely priced that in and driven themselves to over-valued territory. Markets are going to struggle with that,” he said.

Concerns over a rising inflation outlook have pushed investors to book profits on stocks with high valuations in the S&P 500 technology and communications services sectors, which have underpinned a 76% rise in the S&P 500 since its March 2020 lows.

Peter Essele, head of portfolio management at Commonwealth Financial Network in Boston, said there was a lot of irrational exuberance built into stock prices heading into this year.

“We started to enter an environment where risk actually became a factor once again and notably, inflationary risk,” he said. “Now it’s a question of whether the fundamentals are going to match the level of prices that currently exist.”

A Labor Department report showed initial claims for state unemployment benefits rose to 861,000 last week from 848,000 the prior week, partly due to potential claims related to the temporary closure of automobile plants due to a global semiconductor chip shortage.

Of the 11 major S&P 500 sectors, only utilities and consumer discretionary rose, while real estate barely fell, off 0.02%.

Walmart Inc slid 6.5% to $137.66 after the world’s largest retailer missed quarterly profit estimates and predicted a low-single digit rise in fiscal 2022 net sales. [nL4N2KO30J]

“We’re getting mixed readings. Strong retail sales and then lousy claims. We’re going to see that probably for the rest of this quarter,” said Jack Ablin, chief investment officer at Cresset Capital Management in Chicago.

“Even the Walmart story wasn’t that bad on the surface; they’re going to make more investments,” Ablin said.

Walmart has invested heavily in online advertising and healthcare businesses over the past year, using pandemic-led sales momentum to diversify beyond brick-and-mortar retail.

Marriott International Inc rose 0.5% to $131.98 after reporting a quarterly loss as the hotel chain’s bookings declined due to pandemic-induced travel restrictions.

Declining issues outnumbered advancing ones on the NYSE by a 2.30-to-1 ratio; on Nasdaq, a 2.53-to-1 ratio favored decliners.

The S&P 500 posted 15 new 52-week highs and no new lows; the Nasdaq Composite recorded 104 new highs and 17 new lows.

(Reporting by Herbert Lash; additional reporting by Devik Jain and Shreyashi Sanyal in Bengaluru; Editing by Saumyadeb Chakrabarty, Anil D’Silva and Dan Grebler)

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