By Caroline Valetkevitch
NEW YORK (Reuters) -U.S. stocks dropped on Thursday, with chipmaker stocks extending losses for a second day, and as a jump in producer prices left investors wondering if the Federal Reserve might wait longer than expected to cut interest rates.
Data showed U.S. producer prices increased more than expected in February as the cost of goods like gasoline and food surged.
Rate-sensitive utilities and real estate were the day's weakest sectors, with real estate down 1.6% and utilities off 0.8%.
The Fed is expected to leave rates unchanged at its policy meeting next week. The market has trimmed the odds of a cut of at least 25 basis points at its June meeting to 62.9%, CME's FedWatch Tool showed, down from 81.7% a week ago.
"If we take inflation as a whole, we've had relatively hot inflation readings the last two months now, yet the market has kind of powered higher," said Tony Welch, chief investment officer of SignatureFD.
"Fed policy may not be as loose as the market wanted it to be this year, but the prospect of further tightening still remains a low probability."
Nvidia (NASDAQ:NVDA) shares fell 3.2%, while an index of semiconductors was down 1.8%. The index is down 3.5% for the week so far, with investors taking profits after recent sharp gains.
The Dow Jones Industrial Average fell 137.66 points, or 0.35%, to 38,905.66. The S&P 500 lost 14.83 points, or 0.29%, at 5,150.48 and the Nasdaq Composite dropped 49.24 points, or 0.3%, to 16,128.53.
The S&P 500 remains up about 8% for the year to date.
The small cap Russell 2000 fell 2% on the day, underperforming the broader market.
"There's nervousness about the market being very extended with a relatively narrow breath. You can see the anxiety from the hotter PPI expressed in the Russell index of small and midcap names," said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
Other data showed U.S. retail sales rebounded in February, rising 0.6%, but less than the 0.8% advance expected.
Shares of Robinhood (NASDAQ:HOOD) Markets rose 5.2% after the trading app operator said its assets under custody rose 16% in February.
Volume on U.S. exchanges was 13.1 billion shares, compared with the 12.1 billion average for the full session over the last 20 trading days.
Declining issues outnumbered advancers on the NYSE by a 3.77-to-1 ratio; on Nasdaq, a 3.08-to-1 ratio favored decliners.
The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 57 new highs and 186 new lows.