By Corrie Driebusch and Nathan Allen 

U.S. stocks retreated Friday afternoon, as the Federal Reserve appeared to play down chances of a large interest-rate cut.

Stocks lost momentum in afternoon trading as the central bank clarified its goals for its July meeting. Fed officials signaled they are ready to cut interest rates by a quarter-percentage-point at their coming meeting, but are not prepared for bolder action by making a half-point cut, as analysts and traders have speculated in recent days, The Wall Street Journal reported Friday.

Earlier in the day, stocks extended their Thursday rise, which started after New York Fed President John Williams said central banks must take swift action when faced with adverse economic conditions, which some investors interpreted as signaling a 0.5% rate cut in July. However, the bank later said Mr. Williams didn't intend to signal any specific policy changes.

The S&P 500 and Nasdaq Composite declined less than 0.1% in recent trading, while the Dow Jones Industrial Average added 42 points, or 0.2%, to 27265. All three indexes remain slightly lower over the past week, while they are still on track for month gains of nearly 2% or more following big rises in June.

The yield on the 10-year Treasury note rose to 2.062% on Friday from 2.040% on Thursday, while the 2-year-note yield, sensitive to shifting expectations for Fed policy, rose to 1.835%, up from 1.776% on Thursday, according to data from FactSet.

Second-quarter earnings also swung individual companies Friday, as the first big week of firms reporting results came to a close with many exceeding beaten-down expectations. Companies that have missed analyst estimates have been swiftly punished by traders, but their losses haven't been enough to make a big dent in the broader market's march higher.

Since the recent stocks rally began in early June, the S&P 500's climb has been consistent with only very small drawdowns, said Frank Cappelleri, senior equity sales trader and chief market technician at Instinet. Since July 4, the largest drop in the S&P 500 has been a 1.7% decline from an intraday trading high on June 21 to an intraday low on June 26, according to Dow Jones Market Data.

"It's been quiet and persistent, but this kind of market can change on a dime," he said.

Among the biggest stocks moving on Friday were Microsoft, whose shares rose 0.7% after reporting its profits beat expectations and that its cloud-computing business drove revenue to a record, and American Express, whose shares fell 2.7% after the credit-card company reported a rise in total expenses.

With about 15% of companies in the S&P 500 reporting results, earnings are on track to contract 2.1% in the second quarter from a year earlier, according to FactSet. At the end of June, analysts predicted second-quarter earnings would contract 3% from a year earlier, FactSet data show.

There have been signs of weakness. On Thursday, Netflix's stock tumbled 10% after the streaming giant said for the first time in nearly a decade the number of its subscribers declined. That large drop from one of the biggest contributors to the S&P 500 wasn't enough to drag down the broader market, and major indexes ended Thursday higher.

On Friday, the price of oil rose, rebounding from the month's lows and marking a second day of volatility in the prices. Iran denied that the U.S. Navy downed one of its drones in the Strait of Hormuz, following several close encounters between American warships and the Iranian military on Thursday in the vital oil shipping route that have further raised tensions between the nations. U.S.-traded crude oil recently traded up 0.4% to $55.64 a barrel.

In Europe, the pan-continental Stoxx Europe 600 index rose 0.1% following a two-day losing streak. The index eked out a small weekly gain.

In Asia, most benchmark gauges traded higher. Hong Kong's Hang Seng Index rose 1.1%, buoyed by consumer-goods companies. Japan's Nikkei 225 index climbed 2%. Both indexes ended the week up 1%.

-- Lauren Almeida contributed to this article

Write to Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

July 19, 2019 14:40 ET (18:40 GMT)

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