Stock market retreats as Broadcom guidance weighs on tech shares

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U.S. stocks fell Friday morning after a round of disappointing Chinese economic data, while tech shares were under pressure following lower guidance by tech conglomerate Broadcom Inc., which cited the effects of the U.S.-China trade fight.

Investors were also eyeing data on U.S. retail sales, which have risen three months in a row and stronger-than-expected numbers on industrial production, which might dampen the rise in market expectations for an aggressive round of easing by the Federal Reserve later this year.

What are major indexes doing?

The Dow Jones Industrial Average DJIA, -0.14% fell 55 points, or 0.2%, to 26,051, while the S&P 500 index SPX, -0.27% declined 8 points, or 0.3%, to 2,883. The Nasdaq Composite Index COMP, -0.56% declined 45 points, or 0.6%, to 7,794.

The Dow on Thursday rose 101.94 points, or 0.4%, to close at 26,106.77, while the S&P 500 advanced 11.8 points, or 0.4%, to finish at 2,891.64. The Nasdaq Composite gained 44.41 points, or 0.6%, to end at 7,837.13. Major indexes are on track for weekly gains and are solidly higher for the month.

What’s driving the market?

A weaker tone was attributed in part to signs of further cooling of business activity in China, with May industrial output and investment figures slowing further. May industrial output growth slowed to a more than 17-year low, the weakest since 2002, and well below expectations. Value-added industrial output rose 5% in May after a 5.4% rise in April. Economists had penciled in a 5.5% rise. Fixed-asset investment outside rural households rose 5.6% in the January-May period from a year earlier, slowing from the 6.1% rise seen in the January-April period. Retail sales, however, saw a stronger-than-expected climb of 8.6% in May.

Also on trader’s radar were U.S. retail sales data, which rose 0.5% in May, slightly below the 0.7% jump expected by economists polled by MarketWatch. More important was the revision of April sales, which the Commerce Department now says rose 0.3%, versus the previously estimated 0.2% decline. Stock-index futures initially pared losses on the news, but then reversed course, potentially because the bullish data lowers the chances that the Federal Reserve will cut interest rates this summer.

Investors continue to watch developments in the Middle East after a pair of oil tankers were attacked near the Strait of Hormuz. The U.S. blamed Iran, while Tehran denied responsibility. The incident escalates tensions in the region, heightening fears of a potential U.S.-Iran military confrontation and disruption to oil supplies.

Read: Strait of Hormuz: Attack on oil tankers puts crucial transport ‘choke point’ in focus

The news sent oil futures higher, but they ended off session highs Thursday. Stock-market bulls appeared unfazed by the developments. Crude futures CLN19, +0.90% rose more than 1% Friday.

Broadcom AVGO, -6.56% lowered its guidance for the rest of the year after reporting second-quarter earnings Thursday afternoon. The update dents hopes for a rebound in the semiconductor market, with the company citing a combination of the U.S. sanctions on Chinese technology giant Huawei Technologies Co. and customers made jittery by trade policy concerns. Shares fell 6.6%.

Opinion: Broadcom slaps down hopes for a second-half rebound in chips

Trade tensions continue to rattle executives outside the technology sector too, as a group of more than 600 companies, including Walmart Inc. WMT, +0.50% and Target Corp. TGT, -0.41% signed a letter to President Trump Thursday afternoon urging him to remove tariffs on Chinese imports.

What other companies are in focus?

Facebook Inc. FB, +1.88% shares could be in focus Friday, after The Wall Street Journal reported the social network is set to announce a partnership with more than a dozen companies to create a cryptocurrency called Libra. Partners include Visa Inc. V, +0.63% Mastercard Inc. MA, +0.14% PayPal Holdings Inc. PYPL, +0.12% and Uber Technologies Inc. UBER, -2.22%  

Chewy Inc. CHWY, +59.59%  shares made its debut on the New York Stock Exchange Friday, popping more than 70% to roughly $38 per share, after the stock was initially priced at $22 per share. Strong demand for the stock was expected after the online pet-supply retailer had initially targeted a range of between $17 to $19, before raising it to the $22 level.

What are the analysts saying?

“The biggest piece of news for markets is Broadcom cutting its guidance,” Tom Martin, senior portfolio manager at Globalt Investments told MarketWatch. “It adds to fears about global demand. We know we’re in a slowdown, but where does it find its bottom? There’s a hope that we’d get the bounce in the second half of this year,” but the Broadcom guidance and other global economic indicators may put this thesis in doubt, he said.

“The stronger 0.5% [monthly] gain in underlying retail sales in May, along with upward revisions to previous months’ gains, suggests that real consumption growth accelerated to around 3.5% annualized in the second quarter,” wrote Andrew Hunter senior U.S. economist.

“The retail sales data reinforce our view that officials are likely to wait until the September FOMC meeting before pulling the trigger” on lowering rates, he added.

“A further testing of the already strained relationship between the U.S. and Iran, and another round of data disappointments from China, set the scene for a slow and sour start to Friday,” wrote Connor Campbell, financial analyst at Spreadex in a Friday note. “The Chinese data overnight was not good, and the country is clearly feeling the trade war pinch.”

What’s on the economic calendar?

U.S. industrial production rose 0.4% in May, versus the 0.2% rise expected by economists, per a MarketWatch poll, while utilization edged up 0.2 percentage point to 78.1%.

The University of Michigan’s consumer sentiment index fell to 97.9, from 100 in May. Economists polled by MarketWatch expected at reading of 99.

How are other markets trading?

The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.46% was roughly flat at 2.087%.

Asian markets closed mostly lower Friday, with Hong Kong’s Hang Seng Index HSI, -0.65% losing 0.7% and China’s Shanghai Composite Index SHCOMP, -0.99% falling 1%. Japan’s Nikkei 225 NIK, +0.40% meanwhile, rose 0.4%. In Europe, stocks were on the retreat, as shown by the Stoxx Europe 600 SXXP, -0.40%

Gold futures GCN19, +0.60% surged higher. The U.S. dollar DXY, +0.49% meanwhile, edged higher against a basket of its peers.