The S&P 500 Index ($SPX) (SPY) on Friday fell by -0.17%, the Dow Jones Industrial Average ($DOWI) (DIA) fell by -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell by -0.13%. E-mini S&P futures (ESU26) fell -0.27%, and September E-mini Nasdaq futures (NQU26) fell -0.16%.
Stocks ended Friday lower on weak US retail sales and consumer sentiment reports. The weak US economic reports slightly reduced the odds of a September Fed rate hike to 32% from 35% but also sparked worries about a weaker US economy and weaker corporate earnings. The stock market was also concerned that the 10-year T-note yield rose by +5 bp despite the weak US economic reports, as inflation worries continue.
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US tech stocks saw carry-over support from an overnight rally of more than +2% in the South Korean Kospi index, with Samsung Electronics and chip-maker SK Hynix rallying by more than +15% this week. However, US chip stocks were weak on Friday on poor momentum and higher T-note yields, with the iShares Semiconductor ETF closing the day lower.
July US retail sales fell -0.6% m/m, much weaker than market expectations of +0.1%. Ex-autos and gas, July retail sales fell -0.2% m/m, weaker than market expectations of +0.3%. July's weak month-on-month retail sales report was partly due to technical factors, as June sales were temporarily bolstered by World Cup spending and by Amazon’s Prime Day being held in June rather than in July last year. Yet, the weak retail sales report suggested that US consumers are pulling back due to high prices, increased gasoline costs, and a lack of confidence in their finances.
The University of Michigan’s preliminary August US consumer sentiment index fell by -4.2 points to 51.0, weaker than market expectations for only a small -0.2 point decline to 55.0 from July’s 55.2.
Stocks had ongoing support from the favorable US inflation reports released earlier this week. Wednesday’s July core CPI fell to match the 5.5-year low of +2.5% y/y originally posted early this year. The nominal July CPI fell to +3.4% from June’s +3.5% but remained well above the 5.5-year low of +2.3% posted last year. Thursday’s July PPI of +4.7% y/y was down from May’s 3.5-year peak of +5.9% y/y, although it was still far above the Fed’s inflation target of +2%. The July core PPI eased to +4.1% from June’s +4.7%.
Sep WTI crude oil prices (CLU26) on Friday rose by +1.42% on reports that two Abu Dhabi oil vessels were attacked by Iran on Thursday night while moving through the Strait of Hormuz. However, oil prices traded below Tuesday’s 2-week high as the Trump administration pivots to economic pressure rather than fresh US military attacks to try to force Iran to fully reopen 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.” The economic measures would add to the current US naval blockade of Iranian ports.
There have been no signs of progress toward a US-Iran agreement to fully open the Strait of Hormuz. An Iranian military spokesperson said Thursday that no ship can safely pass the Strait of Hormuz without Iran’s authorization and supervision and that President Trump’s claims of control over the Strait are “nothing more than lies.” The Iranian statement was in response to President Trump's comment late Tuesday that the US has “total control over the Hormuz Strait” and that “we own it.”
The outlook for strong Q2 earnings is a bullish factor for stocks. The S&P 500 is tracking for earnings growth of almost 32% in Q2, well above projections of +23%, and nearly four times the average earnings growth rate outside of the Covid period since Q4 of 2013, according to Bloomberg Intelligence. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2. So far, earnings results have been positive, with 85% of the 446 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data.
The markets are discounting a 32% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16, down from 35% on Thursday and 51% as recently as Tuesday.
Overseas stock markets closed mixed on Friday. The Euro Stoxx 50 closed down -0.09%. China's Shanghai Composite closed up +0.01%. Japan's Nikkei-225 Stock Average closed up +0.59%.
Interest Rates
September 10-year T-notes (ZNU6) on Friday fell -10 ticks. The 10-year T-note yield rose +4.0 bp to 4.682%. The 10-year T-note yield rose despite the weak US economic reports as market participants continued to fret about inflation. The 10-year breakeven inflation expectations rate rose +2.3 bp to 2.282%.
Inflation expectations were in focus after Friday’s University of Michigan sentiment report for August showed that consumers expect 1-year inflation at a very high +4.3%, up from expectations of +4.2% in July. Expectations for 5-10 year inflation were unchanged at +3.3%, far above the Fed’s +2% inflation target.
Thursday’s 30-year T-bond auction carried a yield of 5.216%, the highest since 2001. Investors have recently demanded higher Treasury yields due to the US government’s massive budget deficit, high US inflation, Fed Chair Warsh's cutback in policy guidance, and market uncertainty about the Fed's inflation-fighting resolve.
European government bond yields rose. The 10-year German bund yield rose +7.3 bp to 3.204%. The 10-year UK gilt yield rose +8.4 bp to 5.037%.
Markets are discounting a 92% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.
US Stock Movers
The Magnificent Seven on Friday closed mostly lower, a negative factor for the overall market. Meta (META) and Amazon.com (AMZN) were the biggest losers, each down about -0.9%. Tesla (TSLA) and Apple (AAPL) closed fractionally higher.
Chip stocks were mixed, with the iShares Semiconductor ETF (SOXX) closing the day slightly lower by -0.1%. Broadcom (AVGO) and Applied Materials (AMAT) fell more than -5%. However, AMD (AMD) rallied more than +6%, and GlobalFoundries (GFS) rallied by more than +3%.
Applied Materials (AMAT) delivered above-consensus guidance but nevertheless fell more than -5% after failing to exceed high AI expectations.
SanDisk (SNDK) rallied more than +7% after JPMorgan gave the memory and data-storage chip company an overweight rating after the company’s investor day.
Dronemakers rallied after the Trump administration said it will apply a 100% tariff on imported drones and drone components. The Defiance Drone and Modern Warfare ETF (JEDI) rose more than +1%. Drone-parts maker Unusual Machines (UMAC) rallied +24%, while AeroVironment (AVAV) rallied +1.7%.
Reddit (RDDT) rallied more than +12% after news that it will be added to the S&P 500 before the opening on Aug 18 due to an off-cycle change, replacing AvalonBay Communities (AVB), which is being delisted due to its merger of equals with Equity Residential (EQR). The combined AVB-EQR company will remain in the S&P 500 index under EQR’s listing but will be renamed Vivmark.
Wayfair (W) closed +0.5% higher after Bernstein raised its rating on the home goods retailer to outperform from market-perform.
Earnings Reports (8/17/2026)
Fabrinet (FN), XP Inc (XP).
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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