By Sue Chang and Mark DeCambre, MarketWatch

Workday rallies after earnings; Jackson Hole retreat in focus

U.S. stocks headed south on Thursday as hints from Federal Reserve officials that a rate increase may be warranted soon weighed on sentiment ahead of the much-anticipated speech by Fed Chairwoman Janet Yellen on Friday.

"When I look at where we are with the job market, when I look at inflation and our forecast for that, I think it is time to move," Kansas City Fed President Ester George said in an interview on Bloomberg Radio. In a separate interview with CNBC, she said hikes should be made gradually.

Later Thursday morning, Federal Reserve Bank of Dallas President Robert Kaplan said the case is strengthening for a rate increase in the not-so-distant future. He also called on lawmakers, during an interview on CNBC, to come up with fiscal policies that might boost the economy.

George is a voting member of the policy-setting Federal Open Market Committee, which is set to meet Sept. 20-21. George, in a lone dissent, called for a rate rise at the Fed's July policy meeting. Kaplan will be a voting member of the FOMC in 2017.

The Dow Jones Industrial Average slid 26 points, or 0.1%, to 18,455. Shares of Cisco Systems(CSCO) rose 0.8% to lead blue-chip gainers, while Wal-Mart Stores Inc(WMT) sank 1.2% to drag on the blue-chip index.

The S&P 500 index was off 3 points to 2,172, with the energy sector leading the decline, while the Nasdaq Composite Index edged down 4 points to 5,212.

Chatter on monetary policy comes as economists and Fed officials gather for a symposium in Jackson Hole, Wyo., which will be headlined by Yellen's speech at 10 a.m. Eastern on Friday.

Analysts at BNP Paribas expect Yellen to "carry the torch" and set the tone for a possible rate hike as early as next month as FOMC members become increasingly hawkish in their rhetoric.

Mark Kepner, managing director of sales and trading at Themis Trading, described Thursday's market as gripped in a state of suspended animation with trading volume weak and investors sidelined to await news out of Jackson Hole.

"I don't think people want to trade without knowing what Yellen will say tomorrow," said Kepner, who believes there is "no harm" in the Fed waiting until December to tighten monetary policy.

Ultraloose monetary policy has been supportive of stocks' multiyear rise and investors have been worried that higher rates might result in a stock-market drop.

Paul Nolte, portfolio manager at Kingsview Asset Manager, said investors are wrestling with the prospect of rate increases as much of the world is seeing anemic economic growth.

"Central banks around the world are throwing money out the window and we're going to be the lone wolf raising rates?" He said that dynamic "creates another whole set of issues with a strong dollar," which markets must contend. A stronger buck has been blamed for hurting earnings of multinational companies as they repatriate their sales in U.S. dollars.

Weekly jobless benefits claims fell to 261,000 (http://www.marketwatch.com/story/jobless-claims-dip-to-261000-layoffs-still-scarce-2016-08-25), showing that fewer Americans are losing their jobs as summer nears an end. U.S. durable-goods orders jumped 4.4% in July (http://www.marketwatch.com/story/us-durable-goods-orders-jump-44-in-july-2016-08-25). Nolte said that while job growth has been a bright spot in the U.S. economy, signs of stubbornly low inflation has remained the bugaboo for market participants.

Thursday's economic reports may be read as providing some fodder for a resumption of interest rate increases by the Fed, which has been stalled since its last hike in December.

The market's vacillation comes after a downbeat session Wednesday, when the S&P 500 and the Dow industrials finished at their lowest levels since early August (http://www.marketwatch.com/story/us-stock-futures-search-for-firm-direction-marooned-in-wait-for-yellen-2016-08-24).

Read:How Hillary Clinton crushed another rally in biotech (http://www.marketwatch.com/story/how-hillary-clinton-crushed-another-rally-in-biotech-2016-08-24)

Economic news: The Kansas City Fed's manufacturing composite index edged up to negative 4 from negative 6 in July. A reading below zero indicates contraction in the sector.

All eyes on Jackson Hole: "Markets are incredibly quiet this August (in sharp contrast to last year), so investors are latching on to anything they can, which gives this meeting a lot more attention than it probably deserves," said Neil Wilson, markets analyst at ETX Capital, in a note.

Jeff Saut, chief investment strategist at Raymond James, said he didn't expect any major revelations at Jackson Hole, but said that investors should take comfort in corporate quarterly results that have been better than expected.

"I think there's too many positive things going on in the market," Saut said. "We think the [corporate] profit cycle made its low in the fourth quarter of last year," he said, suggesting that earnings will be continue to show relative improvement in the third and fourth quarter of 2016. He acknowledges that those earnings beats have been mostly compared to a low bar, and that revenue growth is negative.

Read:Existential threat looms over central bankers as they gather at Jackson Hole (http://www.marketwatch.com/story/central-bankers-face-irrelevance-at-jackson-hole-2016-08-24)

Read:Fed might raise interest rates despite market objections (http://www.marketwatch.com/story/fed-going-out-to-jackson-hole-to-get-divorce-from-markets-2016-08-23)

The ICE Dollar Index was flat, while gold traded lower.

Movers and shakers: Shares of Mylan NV(MYL) extended losses to fall 1% in the wake of public outrage over the company's move to hike the price of EpiPen, a lifesaving medication which is widely used to treat anaphylactic shock.

Shares of Workday Inc.(WDAY) jumped 7% after the finance and human-resources cloud company late Wednesday posted revenue ahead of forecasts (http://www.marketwatch.com/story/workday-shares-rise-as-second-quarter-revenue-tops-street-view-2016-08-24).

Shares in Guess Inc.(GES) soared 232% on the back of earnings out late Wednesday that beat expectations (http://www.marketwatch.com/story/guess-shares-spike-after-earnings-same-store-sales-beat-estimates-2016-08-24).

HP Inc.(HPQ) shares were mostly flat after the tech company reported better-than-expected earnings late Wednesday (http://www.marketwatch.com/story/hp-inc-falls-despite-earnings-beat-outlook-disappoints-2016-08-24).

Williams-Sonoma Inc.(WSM) rose 1.9% after its quarterly results met analysts' expectations despite issuing a weak outlook (http://www.marketwatch.com/story/williams-sonoma-shares-slide-on-disappointing-outlook-2016-08-24).

Tiffany & Co.(TIF) rallied 6.7% after the high-end jewelry retailer beat fiscal second-quarter profit expectations (http://www.marketwatch.com/story/tiffanys-stock-boosted-by-profit-beat-2016-08-25).

Signet Jewelers Ltd. (SIG) tumbled 13% after the jeweler reported that second-quarter sales dropped (http://www.marketwatch.com/story/signet-jewelers-tiffany-co-report-sales-drops-2016-08-25).

Medtronic PLC(MDT) declined 1.3% lower after affirming its fiscal 2017 outlook.

Dollar General Corp.(DG) tanked 17% and Dollar Tree Inc.(DLTR) dropped nearly 10% after both discount retailer reported disappointing earnings.

St. Jude Medical Inc.(STJ) slumped 5.2% after short selling firm Muddy Waters Capital said it was betting against the cardiovascular medical device maker (http://www.marketwatch.com/story/st-jude-medicals-stock-drops-after-short-seller-muddy-waters-takes-aim-2016-08-25).

Other markets: Stocks in Asia closed mostly lower (http://www.marketwatch.com/story/asian-stocks-slump-as-investors-remain-cautious-2016-08-24) as investors there remained on the sidelines ahead of Yellen's speech.

European markets followed suit and dropped sharply (http://www.marketwatch.com/story/european-stocks-slide-after-surprise-drop-in-german-business-confidence-2016-08-25), with Germany's DAX 30 index among the biggest decliners after a disappointing reading on German business sentiment (http://www.marketwatch.com/story/germanys-ifo-index-falls-sharply-missing-views-2016-08-25).

Oil futures (http://www.marketwatch.com/story/oil-prices-waver-as-disappointing-us-inventory-data-fuel-oversupply-concerns-2016-08-25) turned positive, after sinking to a one-week low Wednesday on disappointing U.S. inventory data.

--Sara Sjolin contributed to this report.

(END) Dow Jones Newswires

August 25, 2016 15:44 ET (19:44 GMT)

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