The Dow Jones Industrial Average finished down 170 points, or 0.47%, to 36,236, while the S&P 500 slipped 0.10% and the tech-heavy Nasdaq fell 0.13%.
The 10-year Treasury yield rose 1.73%.
"The big question for many traders is how high yields will go up and at one point will it become a problem for the economy."" said Edward Moya, senior market analyst for the Americas with Oanda. "Most of Wall Street has an upbeat outlook for 2022, but the risks of a Fed policy mistake, US geopolitical tensions with both Russia and China, and inflationary pressures, pose serious risks to the stock market later in the year."
Minutes from the Federal Reserve’s December meeting released on Wednesday showed the central bank was getting ready to remove its economic help at a faster pace than expected -- a reveal that sent stock prices tumbling.
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Solita Marcelli, chief investment officer Americas, at UBS Global Wealth Management, said in a research note that "the minutes are usually uneventful, but certain statements suggest that the Fed is willing to hike rates sooner and faster than what investors were assuming."
"The Fed minutes don’t alter our base case expectation that equities will continue to move higher, and for the more cyclical markets to be the relative beneficiaries of above-trend US and global growth," she said.
Marcelli added that "labor market strength, coupled with early indications of strong holiday spending, suggests that economic activity has held up reasonably well despite the very rapid spread of the omicron variant."
The release of the Fed minutes also hit bitcoin hard, with the biggest digital currency down down 2.2% to $43,220.
Jobless claims totaled 207,000 for the week ended Jan. 1, while economists surveyed by FactSet had expect a total of 195,000 claims.
The Commerce Department said on Thursday that the trade gap jumped 19.4% to $80.2 billion in November. Economists polled by Reuters had forecast a $77.1 billion deficit.
The releases come a day ahead of the Labor Department’s nonfarm payrolls report, which is expected to show that the economy added 422,000 jobs in December.
On Wednesday, the payroll processing firm ADP reported that companies added a much higher-than-expected 807,000 positions last month.
In commodity markets, Brent crude, the international oil benchmark, was up 1.4% at $81.92 a barrel.
Oil prices surged earlier in the week after the Organization of the Petroleum Exporting Countries and a coalition of Russia-led oil producers agreed to continue pumping more crude.
Rate-sensitive stocks also were also higher following the release of Fed officials' discussions about the direction of the economy and interest rates last month.
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