S&P 500 weekly losses

Stocks fell on Friday as traders continued to digest a slew of mixed economic data and its implications for monetary policy.

The S&P 500 dropped more than 0.9%, adding to recent losses after a new report showed consumer sentiment missed estimates in early September and held near a decade-low as concerns over inflation lingered. The blue-chip index also posted its second straight weekly loss. And both the Dow and Nasdaq also ended lower by the end of Friday's session.

Friday's session also coincided with the quarterly "quadruple witching" event on Wall Street, wherein individual stock options and futures, and index options and futures, all expire on the same day. The occasion has typically brought additional volume — and often some volatility — especially in the days leading up to it and in the run-up to market close.

Meanwhile, the latest set of U.S. economic data out Thursday painted a more upbeat than anticipated picture of the U.S. consumer. August retail sales posted a surprise increase as consumers turned back towards goods spending amid the latest wave of the Delta variant. And while weekly new jobless claims rose in the Labor Department's latest report, the level of new claims still held near its lowest since March 2020.

The data will all factor into the Federal Reserve's latest assessment of the economic backdrop at officials' next monetary policy-setting meeting next week, with investors focusing closely on the Fed's timing to announce plans to begin tapering its pandemic-era asset purchase program.

Still, investors have eyed the latest data with ongoing caution about the outlook going forward, especially given lingering uncertainties around the coronavirus, supply chain challenges and next moves on monetary and fiscal policy.

"I think it's really this tug of war at the moment that's under way, which is to say, there's still good news on the economy. In fact, in the last two days, we've gotten some good regional Fed survey reports and today's retail sales number," Mark Luschini, chief investment strategist for Janney Montgomery Scott, told Yahoo Finance on Thursday.

"But at the same time, it's in the context of this overall deceleration of growth we've seen so far in the third quarter [and] worries about the Delta variant. And of course, we are facing prospects and discussions around taxes to fund fiscal stimulus programs and as well as a potential debt ceiling debacle," he added. "So there's a lot of things that are creating cross-currents for investors at the moment, which is creating this environment in which day after day you flip-flop between cyclicals and defensives with no real pattern being elicited by either."

As of Thursday's close, and with two weeks to go in September, the S&P 500 was pacing toward its first monthly decline since January. Though the blue-chip index has still less than 2% from an all-time high, it has traded flat to slightly lower over the past several weeks as traders await next catalysts.

"We've had a lot of back and forth, and I think it's reflective of a market that's been up 20%, a lot has already been priced in," John Lynch, Comerica Wealth Management chief investment officer, told Yahoo Finance. "We're entering the quiet period before third-quarter earnings. Even if third-quarter earnings are up 30%, they'll be a third of what earnings did in the second quarter. So investors have a lot to process with that."

He added, however, that equities still have the benefit of a lack of competition in many other areas of the market, especially given current monetary policy posturing.

"If you're thinking about real rates still being negative, M2 or money supply growing twice the rate of GDP, that is a bid for equities in spite of some of the uncertainty," Lynch said.