US stocks fell on Friday as investors were hit by a drop in chipmakers stocks and weak data from China.
The Dow Jones Industrial Average was down 38 points, or 0.1 percent. The Standard & Poor’s Index shed 0.1%, with the technology sector down 0.8%. The NASDAQ composite was down 0.4%.
Chip makers fell broadly after the weak quarterly results from Broadcom. VanEck Vectors Semiconductor ETF (SMH) fell 2.7%, driven by a 6.4% drop in Broadcom. The chip maker posted weaker-than-expected earnings in the previous quarter and cut its guidance for 2019, citing weak “broad-based” demand and the US campaign on Huawei.
Other semiconductor stocks also fell. Micron Technology, Advanced Micro Technology and Applied Materials were trading down more than 1%. The Dow also fell 1.3%.
The “weak 2H outlook could pressure AVGO/peers … and semis in general until we get a China/US trade resolution that can reignite customer confidence,” declared Bank of America senior analysts. “We do assume that any volatile stock market correction could pressure the two sides to come to some kind of resolution.”
Wall Street sentiment has been dampened by disappointing industrial data from China. Industrial production in China rose 5% last month on an annual basis, the slowest pace of growth in 17 years. Chinese stocks fell overnight after the release of data. Shanghai Composite Index lost 1% while Shenzhen A Shares fell 1.8%.
The main US stock indexes recorded strong gains in the previous session, adding to the sharp rise this month. The Dow Jones, Standard & Poor’s and Nasdaq rose more than 5% in Friday’s session. They were all also at a fast pace for weekly consecutive gains.
Retail sales in the United States rose by 0.5% in May, according to the Ministry of Commerce. This was below the 0.6% gain forecast by economists surveyed. However, April retail sales were adjusted. May sales also rose by 0.5% excluding cars, building materials, gas and food.
ȚWe continue to expect that a sharper slowdown in economic growth over the coming months will convince the Fed to cut interest rates, but the retail sales data reinforce our view that officials are likely to wait until the September FOMC meeting before pulling the trigger,” declared senior US market analyst Andrew Hunter.
The Federal Reserve is set to hold a two-day monetary policy meeting next week. The central bank is not expected to make any policy changes next week, but investors will be looking for evidence of possible rate cuts later this year.
Market expectations for a July interest rate cut were at 86.3% and investors were pricing a 70.1% chance of another cut in September.
” People are reading the Fed wrong. Everyone is expecting these cuts and the narrative is they will be supportive of the market,”, declared David Lafferty, the Chief Market Staregist of Natixis Investment Managers. “If the Fed is anywhere close to what the market is pricing in, which is two-to-three cuts in the next few months, that’s a Fed that’s in full retreat. I see that as undermining confidence.”