By Sue Chang, MarketWatch , Ryan Vlastelica

Major indexes extend gains for second week

U.S. stocks retreated from near record levels to close lower on Friday as the dollar continued to charge higher, with the ICE dollar index trading at a 13-year high. Investors taking profits on the recent rally also pressured major indexes.

The stock market opened higher, with the Nasdaq Composite notching an intraday record, but failed to defend its gains. Still, key indexes rose for a second week in a row and the Russell 2000 logged its 11th straight daily advance. The index has hit a series of records of late, as investors increasingly favorsmall-cap stocks (http://www.marketwatch.com/story/stock-market-investors-turn-to-small-caps-after-trump-win-2016-11-15).

Read:Trump win a windfall for stock market's little guys (http://www.marketwatch.com/story/trump-win-a-windfall-for-stock-markets-little-guys-2016-11-18)

The market has been steadily rising all month but the uptrend accelerated after the unexpected election of Donald Trump. Many investors think that Trump's policy proposals--including massive cuts to corporate tax rates and financial and environmental deregulation--will spur growth, inflation and higher interest rates. (http://www.marketwatch.com/story/stock-markets-trump-rally-is-mostly-a-bank-rally-2016-11-17)More than half the S&P 500's postelection gains have come from the financial sector.

Also see:Stock market's 'Trump rally' is mostly a bank rally (http://www.marketwatch.com/story/stock-markets-trump-rally-is-mostly-a-bank-rally-2016-11-17)

"A lot of speculation is now embedded in the markets," said Kent Engelke, chief economic strategist at Capitol Securities Management Inc.

"Some of this speculation now has to be reversed as reality begins to sink in" since many of Trump's campaign promises can't be implemented overnight, he said.

The Dow Jones Industrial Average fell 35.89 points, or 0.2%, close at 18,867.93, while the S&P 500 dropped 5.22 points, or 0.2%, to end at 2,181.90. The Nasdaq Composite Index shed 12.46 points, or 0.2%, to finish at 5,321.51 after hitting an intraday record of 5,346.60 during the session.

Read:Dow 19K? It's been a slow march (http://www.marketwatch.com/story/dow-19k-its-been-a-slow-march-2016-11-18)

For the week, the Dow is 0.1% higher, the S&P rose 0.8% and the Nasdaq added 1.6%.

See:Here are Goldman's 2017 forecasts for stocks, oil and more--in one chart (http://www.marketwatch.com/story/here-are-goldmans-2017-forecasts-for-stocks-oil-and-more-in-one-chart-2016-11-18)

"You can make the case that we'll have a more business-friendly environment in Washington, and at the same time, economic data has already been getting better, so our backdrop seems strong as well," said Art Hogan, chief market strategist at Wunderlich Securities.

BTIG's chief technical strategist Katie Stockton said there are signs of "short-term exhaustion" in stocks which indicate a correction is looming. Still, the fact that more than 30% of S&P 500 components have witnessed a breakout following the election suggests that investors should buy back into the market on dips.

Investors are watching the U.S. dollar, which has seen the ICE Dollar index hit its highest level since 2003, according to FactSet data. A stronger dollar can erode the profitability of large-cap companies, who depend more on exports, which is one reason why investors have been moving to small-cap stocks (http://www.marketwatch.com/story/stock-market-investors-turn-to-small-caps-after-trump-win-2016-11-15) since the election. The index rose 0.4% on Friday, a move that comes after Federal Reserve Chairwoman Janet Yellen signaled Thursday that a December interest-rate hike (http://www.marketwatch.com/story/yellen-says-fed-may-hike-interest-rates-relatively-soon-2016-11-17) was likely to go ahead.

Need to know:The S&P 500 is also getting ever-so-close to a record (http://www.marketwatch.com/story/a-trump-trade-war-why-goldman-thinks-investors-shouldnt-believe-the-hype-2016-11-18)

In a continuation of Thursday's action, the yield on the 10-year Treasury note rose to 2.34%.

Fed speakers ahead: Investors might look for guidance from more policy makers on Friday. St. Louis Fed President James Bullard said at a conference in Frankfurt that he's leaning toward the likelihood of an interest-rate hike in December, according to a report from CNBC (http://www.cnbc.com/2016/11/18/feds-bullard-says-hes-leaning-toward-supporting-a-december-rate-hike.html).

Stocks to watch: Health care stocks were the weakest of the day, with the S&P health care sector down 1.1%. Energy stocks were the top gainers of the day, up 0.5%. Chevron Corp.(CVX) rose 1%.

Abercrombie & Fitch Co.(ANF) shares sank 14% as profit dived and the company announced a rebranding (http://www.marketwatch.com/story/abercrombie-fitch-profit-tumbles-as-it-rebrands-2016-11-18).

Salesforce.com Inc.(CRM) rose 3.4% after the cloud-computing company posted rising revenue and boosted its outlook (http://www.marketwatch.com/story/salesforce-posts-rising-revenue-lifts-outlook-2016-11-17-1948519).

Read:Salesforce sets finish line in race to $10 billion (http://www.marketwatch.com/story/salesforce-sets-finish-line-in-race-to-10-billion-2016-11-17)

Gap Inc.(GPS) tanked 17% after the retailer posted a weak outlook. late Thursday. (http://www.marketwatch.com/story/gap-shares-fall-on-weak-outlook-2016-11-17)

Shares of Ross Stores Inc.(ROST) rallied 3.8% after the retailer reported better-than-expected quarterly earnings (http://www.marketwatch.com/story/ross-shares-rise-on-better-than-expected-earnings-2016-11-17).

Other markets: European stocks (http://www.marketwatch.com/story/banks-commodity-stocks-slide-put-pressure-on-european-markets-2016-11-18) pulled back slightly on Friday, led by banking and commodity names. European Central Bank President Mario Draghi (http://www.marketwatch.com/story/ecbs-draghi-signals-stimulus-will-be-extended-2016-11-18) signaled Friday that the central bank's stimulus will be extended for the region, whose economy remains clouded by risks.

Asian markets (http://www.marketwatch.com/story/asian-markets-rise-nikkei-hits-10-month-high-in-intraday-trading-2016-11-17) had a mixed day, though yen weakness gave a boost to the Nikkei 225 index , which rose 0.6%.

The dollar's move higher took a toll on gold (http://www.marketwatch.com/story/gold-slides-toward-1200-as-us-rate-hike-looks-imminent-2016-11-18), which settled down 0.7%.

--Barbara Kollmeyer contributed to this report.

(END) Dow Jones Newswires

November 18, 2016 16:24 ET (21:24 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.