By Sinead Carew
(Reuters) - U.S. stock indexes slipped on Thursday as investors braced for a third interest rate hike this year and the United States ordered new sanctions against North Korea.
The S&P and the Dow snapped a run of record closing highs and Apple <AAPL.O> was the biggest drag on the three major indexes with a 1.7 percent drop on worries about demand for its latest smartphone.
Investors increased bets the U.S. Federal Reserve would raise rates again this year after the central bank's statement on Wednesday and were also assessing its decision to start reducing its roughly $4.2 trillion in U.S. Treasury bonds and mortgage-backed securities.
U.S. President Donald Trump opened the door to blacklisting people and entities doing business with North Korea, further tightening the screws on Pyongyang's nuclear and missile programs.
"The Fed had investors on edge already. Ratcheting up of North Korea tensions can put investors in a little more of a risk-off mode," said Chris Zaccarelli, chief investment officer at Cornerstone Financial Partners, in Huntersville, NC.
However, with the CBOE Volatility Index <.VIX> closing at its lowest level in nearly two months at 9.67, Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York, said the market is not reflecting risks such as U.S.-North Korea tensions and high valuations.
The market is "very complacent and very comfortable in its own skin right now and not really concerned about risk much at all," said Cecchini: "I'm worried about that."
The Dow Jones Industrial Average <.DJI> fell 53.36 points, or 0.24 percent, to 22,359.23, the S&P 500 <.SPX> lost 7.64 points, or 0.30 percent, to 2,500.6 and the Nasdaq Composite <.IXIC> dropped 33.35 points, or 0.52 percent, to 6,422.69.
Fed Chair Janet Yellen said the fall in inflation this year remained a mystery, adding that the central bank was ready to change the interest rate outlook if needed.
Investors were pricing in about a 70 percent chance of a December hike, according to CME's FedWatch tool, up from about 51 percent just prior to the Fed statement.
Only two of the 11 major S&P sectors - financials <.SPSY> and industrials <.SPLRCI> - were higher, with gains of 0.2 percent and 0.3 percent. The consumer staples index <.SPLRCS> was the biggest decliner, down 0.97 percent drop.
Financial stocks have been on a tear in recent days as investors anticipated and then reacted to Fed commentary on rate hikes, which tend to help bank profits.
The S&P has risen about 11.7 percent so far this year, helped by strong corporate profits and lingering optimism among some investors that Trump will cut taxes for businesses.
This has boosted valuations. The S&P is trading at roughly 17.6 times expected earnings, well above its 10-year average of 14.3, according to Thomson Reuters Datastream.
"It's very hard for me to see a tremendous catalyst for the upside, although I also don't see that massive catalyst to create a crack to the downside," said Cantor's Cecchini.
Declining issues outnumbered advancing ones on the NYSE by a 1.35-to-1 ratio; on Nasdaq, a 1.24-to-1 ratio favored decliners.
About 5.54 billion shares changed hands on U.S. exchanges on ,compared with the 6.03 billion average for the last 20 sessions.
(Additional reporting by Caroline Valetkevitch and Tanya Agrawal; Editing by Nick Zieminski and Dan Grebler)