Stocks retreated on Thursday, with technology stocks coming under pressure for another day. Investors also grew pessimistic about the interest rate outlook.

The Dow Jones Industrial Average lost 797.60 points, or 1.65%, to settle at 47,457.22, which is off the record highs seen in the previous session. The S&P 500 shed 1.66% to finish at 6,737.49. The broad-based index saw notable declines in the communication services sector, led by Disney falling nearly 8% on mixed results for the company's fiscal fourth quarter, as well as information technology. The Nasdaq Composite pulled back 2.29% to close at 22,870.36. All three major averages, as well as the small-cap Russell 2000 index, suffered their worst day since Oct. 10.

Investors continued to sell shares of technology companies, especially those in the artificial intelligence trade, amid worries about their valuations. Despite the Nasdaq starting off the week strong, the tech-heavy index was on track to close with a third straight day of losses Thursday, weighed down by heavyweights Nvidia, Broadcom and Alphabet.

"It seems like a natural consolidation to me," Ron Albahary, chief investment officer at Laird Norton Wealth Management, said to CNBC, calling the day's pullback "healthy." "Part of the, I think, AI narrative is that at some point all this [capital expenditure] is going to actually manifest itself. The benefits of it will manifest itself within the broader economy, so if you start seeing health care and manufacturing, industrials start to actually benefit from AI, that supports the overarching narrative, which is AI capex is going to enhance productivity across the board."

A sudden change in rate cut expectations weighed on equities as well. Markets were last pricing in a roughly 52% chance that the data-dependent Federal Reserve will indeed slash its benchmark overnight borrowing rate by a quarter percentage point at its last meeting of the year in December. That marks a sharp drop from the 62.9% likelihood that markets priced in a day ago, according to the CME FedWatch Tool.

The central bank had been flying blind in the midst of the longest-ever government shutdown, as it was without key economic reports, such as the October jobs report and inflation data. White House press secretary Karoline Leavitt said on Wednesday that these reports may ultimately never be released, and that the shutdown could lower fourth-quarter economic growth by up to 2 percentage points. Most economists expect minimal impact to U.S. GDP, however.

The extended stoppage, which lasted more than six weeks, ended Wednesday evening, when President Donald Trump signed into law a government funding bill. The measure, which had been passed by the House of Representatives earlier that night following its passage in Senate Monday, will fund government operations through the end of January.

"While we have always expected that many of the data points missed during the shutdown will remain dark, there are questions about what the inflation and jobs data will look like once these reports come back online," Carol Schleif, chief market strategist at BMO Private Wealth. "We would not be surprised to see some market chop over the coming weeks as the government gears and economic data presses get turning again."