By Lisa Pauline Mattackal and Purvi Agarwal

(Reuters) -The Nasdaq and the S&P 500 were set for their worst session in over two weeks on Friday, after comments from Federal Reserve Chair Jerome Powell pointed to a slower pace of interest-rate cuts.

Powell on Thursday pointed to ongoing economic growth, a solid job market, and inflation above the Fed’s 2% target as reasons the central bank can afford to be careful with the pace and scope of future rate cuts.

Traders increased bets the Fed will keep rates on hold at its December meeting, pricing in a 38% chance, compared with 14% a month ago, according to the CME FedWatch tool. They also dialed back expectations for easing in 2025.

That view was reinforced by economic data on Friday showing U.S. retail sales increased slightly more than expected in October, pointing to further economic strength, while import prices rebounded.

Rate-sensitive megacaps fell as Treasury yields rose, with Nvidia and Amazon.com down more than 3% each, while the information technology index dropped 2.3%.

All three major U.S. stock indexes were headed for weekly losses – the Dow 1.2%, the Nasdaq 2.9% and the S&P 500 2% – as market focus shifted from the presidential election to the state of the economy and potential inflation risks under a new administration.

“We can chalk the defensive tone on the market to several factors … valuations and positioning after the outsized post-election rally last week, the speed that we’ve seen bond yields go back up … (and) to what extent the Fed is going to be able to cut into next year,” said Timothy Chubb, chief investment officer at Girard, a Univest Wealth Division.

Stocks of vaccine makers and packaged food companies dipped after President-elect Donald Trump selected Robert F Kennedy Jr, who has spread misinformation on vaccines and criticized ultra-processed foods, to head the Department of Health and Human Services.

PepsiCo lost 4%. Moderna slumped 8% and Pfizer lost 4.5%, while the healthcare sector dropped 1.8% to its lowest since May.

“The uncertainty over the political process is now over … but the policy uncertainty is robust,” said Lauren Goodwin, economist and chief market strategist at New York Life Investments.

The Dow Jones Industrial Average fell 314.89 points, or 0.72%, to 43,435.97, the S&P 500 lost 73.22 points, or 1.23%, to 5,875.95, and the Nasdaq Composite lost 387.20 points, or 2.03%, to 18,720.45.

The small-cap Russell 2000 index was down 1%, heading for its fourth consecutive session of declines and its worst week in over two months.

The Philadelphia SE Semiconductor index lost 3%, bogged down by a 8.7% decline in Applied Materials after it forecast first-quarter revenue below Wall Street estimates.

Declining issues outnumbered advancers by a 1.93-to-1 ratio on the NYSE and by a 2.56-to-1 ratio on the Nasdaq.

The S&P 500 posted 9 new 52-week highs and 24 new lows while the Nasdaq Composite recorded 26 new highs and 218 new lows.

(Reporting by Lisa Mattackal and Purvi Agarwal in Bengaluru; Editing by Devika Syamnath)

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