U.S. stocks closed down Friday after investors weighed fresh data on producer prices and a reading on consumer sentiment. All three major equities indexes saw weekly declines as investors also considered inflation concerns ahead of the Federal Reserve’s policy meeting scheduled for Dec. 13-14.

U.S. stocks ended lower Friday, booking weekly losses as investors assessed wholesale-inflation and consumer-sentiment data ahead of the Federal Reserve’s meeting next week.

All three major benchmarks snapped two straight weeks of gains, according to FactSet data. The Dow Jones Industrial Average booked a weekly decline of 2.8%, while the S&P 500 dropped 3.4% and the technology-heavy Nasdaq Composite sank 4%.

“Last week’s rally was overdone, and I think we’ve spent this week largely giving it back,” said Steve Sosnick, chief strategist at Interactive Brokers, in a phone interview Friday. “The market recognized that it overshot last week in response to” Fed Chair Jerome Powell’s Nov. 30 remarks at the Brookings Institution, where he indicated the central bank may slow the pace of its interest-rate hikes at its policy meeting this month, said Sosnick.

Equities trading was choppy Friday after the U.S. producer-price index showed wholesale prices rose 0.3% in November, which was above the forecast from economists polled by The Wall Street Journal for a 0.2% gain. The pace of producer-price growth for October and September was also revised higher.

“The market is doing its best to shrug it off,” said Sosnick. The month-over-month rise in wholesale inflation in November wasn’t so hot that “it’s going to freak the market out,” he said.

Meanwhile, equities were encouraged by fresh data Friday from the University of Michigan’s gauge of consumer sentiment, which was stronger than expected this month, according to Sosnick. The reading also showed that consumers’ one-year inflation expectations have come down from November.

“The correlation between the one-year inflationary expectations and the prices of gas is tremendous,” said Sosnick. “When gas goes down, inflationary expectations go down.”

The University of Michigan gauge of consumer sentiment rose to a preliminary December reading of 59.1 from 56.8 in November. Consumers’ inflation expectations over the next year fell to 4.6%, from 4.9% last month.

Market analysts said investors remain focused on next week’s reading of the November consumer-price index on Tuesday to gain a fuller view on inflation in November.

“Onward to the CPI number next week, we need to see what happens there,” said John Stoltzfus, chief investment strategist at Oppenheimer.

At this point, Interactive Brokers chief strategist Sosnick said that he still is expecting the Fed to reduce its next interest rate hike this month to 50 basis points, down from its recent pace of 75 basis-point increases. The Fed, which has been aggressively raising rates to battle high inflation in the U.S., has a policy meeting scheduled for Dec. 13-14.

As investors await the outcome of that meeting, Kevin Gordon, senior investment research manager at Charles Schwab, said in a phone interview Friday that he’ll be focused on whether Powell “pushes back on the loosening of financial conditions, because he didn’t do it at the Brookings speech.” 

Gordon said he’ll also be listening for any concerns the Fed Chair may express about wage pressures stemming from tightness in the labor market, while looking for any clues about where the central bank’s rate hikes may peak.

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“Sellers appear to be comfortable with S&P near 4,000 and the NASDAQ near 11K,” wrote Louis Navellier, chief investment officer of Navellier & Associates, in an emailed note Friday. “Buyers are still hoping for a more dovish stance by the Fed.”

—Jamie Chisholm contributed to this article.

U.S. stocks ended another choppy session slightly higher on Wednesday after the Federal Reserve's meeting minutes showed none of the 19 top central bank officials think it will be appropriate to cut interest rates this year, while economic data suggested economic growth was slowing.

Christine Idzelis is a markets reporter at MarketWatch and is based in New York.

Joseph Adinolfi is a markets reporter at MarketWatch.

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