US equities retreat as retail sales slump and consumer sentiment sours
July retail sales fell 0.6% and University of Michigan sentiment dropped to 51, though indices remain on track for weekly gains ahead of Nvidia’s results.
US equities slipped into negative territory on Friday, reversing the momentum that had pushed the S&P 500 to a record high the previous day. The Dow Jones Industrial Average and the Nasdaq-100 both declined by 0.2%, while the S&P 500 remained largely flat. Despite the daily pullback, major indices were positioned for weekly gains, supported by robust corporate earnings and market expectations that the Federal Reserve will maintain interest rates at its next policy meeting.
The downturn was precipitated by weaker-than-expected economic data released on Friday. US retail sales fell by 0.6% in July, marking the largest decline in over a year and missing Bloomberg estimates for a 0.1% rise. Sales excluding autos and gasoline also dropped by 0.2%, further underscoring a slowdown in summer spending. Concurrently, the University of Michigan’s preliminary consumer sentiment index for August fell to 51 from 55.2 in July, with year-ahead inflation expectations rising to 4.3%.
Economic indicators suggest growing caution among Americans regarding the broader economy. The survey revealed that consumers’ expectations for current conditions and future outlooks both underperformed forecasts. Notably, only 8% of respondents expect income growth to outpace inflation over the coming year, with significant reductions in sentiment observed among older, lower-income, and less-educated demographics. This data complicates the policy landscape for the Federal Reserve, which is navigating softer inflation prints alongside a softening labour market.
Market focus is now shifting to upcoming corporate reports and structural challenges in the technology sector. Attention turns to a series of retail earnings next week, including reports from Target and Walmart, before Nvidia’s highly anticipated results on 26 August. Meanwhile, analysts highlight persistent bottlenecks in AI infrastructure, citing skilled labour shortages, regulatory constraints, and a projected 19-gigawatt power shortfall by 2035.
In corporate news, Applied Materials reported fourth-quarter revenue above Wall Street estimates, yet shares dropped more than 5% in extended trading as lofty investor expectations overshadowed the results. Elsewhere, Silver Lake has held preliminary discussions regarding an acquisition of enterprise software company Workday, a move that could rank as one of the largest private equity software buyouts in history. Additionally, Reddit is set to be added to the S&P 500 on 18 August, replacing Equity Residential.
