The S&P 500 dipped on Thursday even as second-quarter earnings results continued to beat expectations.
The broad index shed 0.33% to close at 4,360.03. The Nasdaq Composite fell 0.7% to 14,543.13. The Dow Jones Industrials Average bucked the trend and added 53.79 points, or 0.15%, to close at 34,987.02.
Morgan Stanley's second-quarter earnings report topped analysts' expectations Thursday morning, yet its shares closed just 0.18% higher. The bank's stock was up 35% this year going into the results.
For the 18 S&P 500 companies that beat analyst estimates for second-quarter earnings this week, the average earnings-per-share result was 18% higher than expected. But those companies saw their shares fall 0.58% on average after reporting.
"The market did as well as it did in the past year because it was in anticipation of the improvement in earnings that we're seeing right now," Liz Ann Sonders, chief investment strategist at Charles Schwab, said. "A lot of news has been priced in."
Investors appeared to favor technology stocks again earlier this week, but those names drifted lower Thursday. Amazon dipped 1.3%, while Google-parent Alphabet shares declined 0.9%. Apple's stock finished the session 0.4% lower.
The slight pullback in the S&P 500 came as the index hovered near its record high. The S&P 500 is already up 16% this year in anticipation of a big profit comeback.
Jeffrey Gundlach, DoubleLine Capital chief executive, said he believes the market could stay at record levels as long as stimulus programs designed to help the economy recover from the pandemic remain in place.
"I think the whole question for investors is...how long this free money stimulus is going to go on," Gundlach told CNBC's "Halftime Report" on Thursday. "As long as it goes on, I think the stock market can stay at nosebleed levels as it has been and continue to grind higher."
Federal Reserve Chair Jerome Powell on Thursday maintained the central bank will continue to evaluate the economic recovery before changing its accommodating monetary policies. The Fed chair spoke before the Senate banking panel in a second day of testimony before Congress.
"The challenge we're confronting is how to react to this inflation, which is larger than we had expected or that anybody had expected. To the extent that it is temporary, then it wouldn't be appropriate to react to that. But to the extent that it gets longer and longer, we'll have to continue to reevaluate the risks that would affect inflation expectations and would be of longer duration and that's what we're monitoring," Powell said.
Powell in a testimony to the House Committee on Financial Services on Wednesday quelled investors' fears about a rollback of the central bank's easy policies anytime soon, even in the face of inflation.
Initial jobless claims for the week ending July 10 totaled 360,000, a new pandemic-era low, as expected by economists.
—CNBC's Robert Hum contributed reporting.
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