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INVESTORS ROTATE INTO BANKS, SOFTWARE AS CHIP STOCKS TAKE A BREATHER

The main U.S. indexes ended modestly red in choppy trading on Wednesday as investors parsed Federal Reserve Chair Kevin Warsh's comments that inflation risks had eased.

Warsh also said he will stick firmly to the U.S. central bank's 2% inflation target and "disappoint" anyone who expects loose monetary policy despite President Donald Trump's call for interest rate cuts.

Meanwhile, unease surrounding U.S.-Iran tensions has cast a shadow over Middle East peace talks, setting a cautious tone for the second half of the year. Tehran said it would not meet with top U.S. envoys who flew to the region following an outbreak of hostilities. Although a source with direct knowledge of the talks, as well as an Iranian official, said the U.S. and Iran held technical talks in Doha, contrasting rhetoric suggested a breakthrough may prove elusive.

A majority of S&P 500 .SPX sectors finished higher. Communication services .SPLRCL led the way, climbing more than 2.5%, while financials .SPSY gained over 2%. On the other hand, tech .SPLRCT lost more than 1.5% and utilities .SPLRCU gave up more than 1%.

Beneath the surface, investors appeared to be rotating within the market. Semiconductor stocks .SOX, which enjoyed a powerful rally through the first half of the year, came under heavy pressure as traders took some profits. At the same time, money flowed into software and services companies .SPLRCIS, as well as both big banks and regional banks.

In fact, the S&P 500 Banks Index .SPXBK and the KBW Regional Banking Index .KRX scored record closing highs.

Another notable theme was the continued rebound in the so-called Magnificent Seven stocks. The Roundhill Magnificent Seven ETF MAGS.K rose 2.4%, extending its winning streak to a fourth consecutive session. Six of the seven stocks gained, with Meta Platforms META.O jumping 9%, and Microsoft MSFT.O up 3%. Only Nvidia NVDA.O declined.

With U.S. markets closed Friday for the July 4 holiday, investors will be looking to the June jobs report on Thursday for clues on the health of the economy and the likely path of interest rates before heading into the long weekend. Expectations call for 110,000 new jobs vs. 172,000 last month.

Here is a snapshot of where markets stood shortly after 4 p.m. ET.

(Terence Gabriel)

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EARLIER ON LIVE MARKETS:

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BOFA CLIENTS REMAIN NET SELLERS AMID MARKET PULLBACK CLICK HERE

DATA JAM: ADP, CHALLENGER GRAY, PMI, ET AL CLICK HERE

CHIP STOCKS RETREAT AFTER RUN AS INVESTORS ROTATE CLICK HERE

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MARKETS DIVERGE, MOMENTUM DOMINATES CLICK HERE

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CAUTIOUS START TO THE QUARTER CLICK HERE