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.

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4:05 p.m. ET: Stocks close out Friday's session lower

Here's where the three major indexes closed out Friday's session:

• S&P 500 (^GSPC): -40.78 (-0.91%) to 4,432.97

• Dow (^DJI): -166.44 (-0.48%) to 34,584.88

• Nasdaq (^IXIC): -137.96 (-0.91%) to 15,043.97

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10:06 a.m. ET: Consumer sentiment increased by a smaller-than-expected margin in September after August's decade-low

Consumer sentiment improved only slightly in early September after reaching the lowest level since 2011 in August, according to the University of Michigan's closely watched monthly survey.

The headline index in the institution's Surveys of Consumers ticked up to 71.0 in the preliminary reading, compared to the 70.3 posted in August. Consensus economists were looking for the index to improve to 72.0 in September, according to Bloomberg data.

Beneath the headline index, a subindex tracking consumers' assessments of current conditions pulled back to 77.1, down from 78.5 in August. However, the subindex tracking expectations rose to 67.1 from 65.1, but remained close to the lowest level in over a year.

Consumers' one-year inflation expectations also ticked up slightly to 4.7% from 4.6% in August.

"The steep August falloff in consumer sentiment ended in early September, but the small gain still meant that consumers expected the least favorable economic prospects in more than a decade," Richard Curtin, chief economist for the Surveys of Consumers, wrote in a statement. "The decline in assessments of buying conditions for homes, vehicles, and household durables left all three near all-time record lows, with the declines due to spontaneous references to high prices."

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9:50 a.m. ET: Stocks are moving beyond the September seasonal pullback: Strategist

September has historically been the worst month for stocks. So far this year, that trend has appeared to be continuing: The S&P 500 is on track to post a slight monthly decline following seven consecutive monthly gains. Still, the index has held onto gains of about 19% so far for the year-to-date.

"You look at the market and it's up so much, you look at valuations and you look at the seasonality of September, and that's what makes you draw the conclusion that we're vulnerable," Anastasia Amoroso, chief investment strategist for iCapital Network, told Yahoo Finance Live on Friday. "The market has had a pullback of 2-3%. And all of those pullbacks throughout the course of the year have been bought."

"So maybe, given the amount of liquidity that we have in the system and the amount of monetary and now fiscal policy support, maybe that's all we get, and maybe we've already gotten this little bit of seasonal volatility in September," she added.

The main point of contention for markets now comes down to fiscal policy, Amoroso said.

"I think it is the uncertainty around taxes: What's going to happen to capital gains, what's going to happen to corporate taxes, what's going to happen to taxes on foreign earnings," she said. "I don't necessarily think we might see a sharp 10% decline or so. But we might be in this holding pattern for now where stocks really cannot break out to the upside until we know, until the stock market knows what's going to come out of Washington."

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9:31 a.m. ET: Stocks open to the downside

The three major indexes opened lower Friday morning, extending a string of choppy trading sessions.

The S&P 500, Dow and Nasdaq were each off by just over 0.1% as the opening bell rang. The small-cap Russell 2000 was also marginally lower.

Other asset classes also traded lower on Friday. U.S. crude oil futures dipped by more than 1%, giving back gains after reaching their highest level in over a month earlier this week. Gold prices fell further, hovering just above $1,750 per ounce.

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7:26 a.m. ET Friday: Stock futures flat to slightly lower

Here's where markets were trading as of Friday morning:

• S&P 500 futures (ES=F): -11.5 points (-0.26%) at 4,462.75

• Dow futures (YM=F): -47 points (-0.14%) to 34,702.00

• Nasdaq futures (NQ=F): -37.5 points (-0.24%) to 15,480.25

• Crude (CL=F): -$0.41 (-0.56%) to $72.20 per barrel

• Gold (GC=F): +$4.90 (+0.26%) to $1,761.20 per ounce

• 10-year Treasury (^TNX): +1 bp to yield 1.341%

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6:13 p.m. ET Thursday: Stock futures open little changed

Here were the main moves in markets as of Thursday evening:

• S&P 500 futures (ES=F): -3.75 points (-0.08%) at 4,470.50

• Dow futures (YM=F): -14 points (-0.04%) to 34,735.00

• Nasdaq futures (NQ=F): -11.25 points (-0.07%) to 15,506.50

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck