Stocks closed lower Friday as disappointing retail sales and consumer sentiment data raised fresh concerns about the health of the U.S. economy and corporate earnings.
The S&P 500 Index (NYSE: SPY) fell by -0.17%, the Dow Jones Industrial Average (NYSE: DIA) declined by -0.20%, and the Nasdaq 100 Index (NASDAQ: QQQ) dropped by -0.13% to close out the week.
July U.S. retail sales fell -0.6% month-over-month, a significant miss against market expectations of a +0.1% gain, signaling consumers are pulling back under financial pressure.
Excluding autos and gas, July retail sales declined -0.2% month-over-month, also falling short of the +0.3% gain analysts had projected.
The weak retail data was partly attributed to technical factors, as June sales had been temporarily boosted by World Cup spending and Amazon’s Prime Day being held in June rather than July.
The University of Michigan’s preliminary August consumer sentiment index fell by -4.2 points to 51.0, far below market expectations of a modest -0.2 point decline to 55.0 from July’s 55.2 reading.
Inflation worries compounded Friday’s market pressure, with the 10-year T-note yield rising +4.0 basis points to 4.682% despite the soft economic data, as investors continued to fret about persistent price pressures.
Consumers expect 1-year inflation at +4.3%, up from +4.2% in July, while expectations for 5-10 year inflation remained elevated at +3.3%, well above the Federal Reserve’s +2% target.
Thursday’s 30-year T-bond auction carried a yield of 5.216%, the highest since 2001, reflecting investor concerns over the U.S. government’s massive budget deficit and the Fed’s inflation-fighting resolve.
The weak economic reports nudged the probability of a September Fed rate hike slightly lower to 32%, down from 35% on Thursday and from as high as 51% as recently as Tuesday.
Among individual movers, Meta (NASDAQ: META) and Amazon.com (NASDAQ: AMZN) were the biggest decliners among the Magnificent Seven, each falling roughly -0.9% on the session.
Chip stocks faced headwinds, with the iShares Semiconductor ETF (NASDAQ: SOXX) closing slightly lower by -0.1%, while Broadcom (NASDAQ: AVGO) and Applied Materials (NASDAQ: AMAT) each shed more than -5%.
Applied Materials delivered above-consensus guidance but fell more than -5% after the results failed to meet elevated AI-driven expectations from investors.
AMD (NASDAQ: AMD) bucked the trend, rallying more than +6%, while SanDisk (NASDAQ: SNDK) surged more than +7% after JPMorgan assigned the memory and data-storage chip company an overweight rating following its investor day.
Reddit (NYSE: RDDT) was a standout gainer, surging more than +12% after the company announced it will be added to the S&P 500 before the open on August 18, replacing AvalonBay Communities (NYSE: AVB).
Drone stocks caught a tailwind after the Trump administration announced a 100% tariff on imported drones and drone components, sending Unusual Machines (NYSE: UMAC) soaring +24% and AeroVironment (NASDAQ: AVAV) rising +1.7%.
The Defiance Drone and Modern Warfare ETF (NYSE: JEDI) also benefited, gaining more than +1% on the tariff news.
Oil markets added another layer of geopolitical tension, with September WTI crude oil prices rising +1.42% after reports emerged that two Abu Dhabi oil vessels were attacked by Iran while transiting the Strait of Hormuz.
Treasury Secretary Bessent said the administration will soon announce unprecedented economic measures against Iran that “have never been seen in the history of economic isolation of a country,” signaling a shift toward economic pressure over military action.
Despite the day’s losses, the broader earnings backdrop remains supportive, with the S&P 500 tracking earnings growth of nearly 32% in Q2, well above the original projection of +23%, according to Bloomberg Intelligence.
AI infrastructure stocks are expected to contribute nearly 60% of the S&P 500’s earnings-per-share growth in Q2, with 85% of the 446 companies that have reported so far beating estimates, according to Bloomberg data.
