Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 26, 2022. Reuters / BRENDAN MCDERMID

The Dow rose and the S&P 500 edged lower in choppy trade on Friday, with bank shares rising as investors grappled with how best to deal with an economy that could skid as the Federal Reserve moves to aggressively tackle inflation.

The yield on the benchmark 10-year U.S. Treasury note hit a three-year high of 2.73%, helping boost the S&P banking index, which on Thursday had slumped to 13-month lows.

Rate-sensitive lenders JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Goldman Sachs Group Inc were up between 1.1% and 2.4% in late afternoon trade.

Since peaking at two-month highs in late March, the market has been trending lower as the Fed signals it will aggressively hike rates, leading investors to reposition their portfolios.

"There's always going to be a price at some point where people are going to step in and think things are cheap and they might buy," said Randy Frederick, managing director, trading and derivatives, at Schwab Center for Financial Research.

"Perhaps a 52-week low was enough to entice some people into the financial sector," Frederick said, noting the 10-year Treasury yield was at its highest level since March 2019.

Big U.S. banks, which kick off the first-quarter results season next week, are expected to show a sharp decline in earnings from a year earlier, when they benefited from exceptionally strong dealmaking and trading, and funds set aside for loan losses being released.

The S&P 500 and the Nasdaq were set to end the week lower, with the tech-heavy Nasdaq the worst hit after comments from Fed officials raised concerns about rapid rate hikes causing an economic slowdown.

Shares of Tesla Inc, Nvidia Corp and Alphabet Inc fell between 1.3% and 4.0%, with the megacap stocks set to extend this week's decline as the surge in Treasury yields weighed.

The NYSE FANG+TM index, which includes Inc and Apple Inc, and semiconductor stocks have shed 4.5% and 7.2% respectively, so far this week.

The Russell 1000 Value index rose 0.60%, outperforming the Russell 1000 Growth index, which fell 0.92% in the latest sign of sector rotation.

By 2:29 p.m. EDT, the Dow Jones Industrial Average was up 171.96 points, or 0.5%, at 34,755.53, the S&P 500 lost 6.08 points, or 0.14%, to 4,494.13 and the Nasdaq Composite dropped 154.92 points, or 1.11%, to 13,742.38.

Robinhood Markets Inc fell 6.2% after a report said Goldman Sachs downgraded the online brokerage, while Kroger Co jumped 2.8% on a ratings upgrade.

Advancing issues outnumbered declining ones on the NYSE by a 1.02-to-1 ratio; on Nasdaq, a 1.38-to-1 ratio favored decliners.

The S&P 500 posted 55 new 52-week highs and two new lows; the Nasdaq Composite recorded 49 new highs and 154 new lows.