Stock market retreats as tech shares slide; Chewy soars on debut

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Chewy
Chewy defies a weak market to rally on its first day of trading as a public company.

U.S. stocks fell Friday as tech shares came under pressure following lower guidance by chip giant Broadcom Inc., which cited the effects of the U.S.-China trade fight. A round of disappointing Chinese economic data also weighed on sentiment.

What are major indexes doing?

The Dow Jones Industrial Average DJIA, +0.03% fell 14 points to 26,092 and the S&P 500 index SPX, -0.09% declined 4 points, or 0.2%, to 2,887. The tech-laden Nasdaq Composite Index COMP, -0.39% shed 35 points, or 0.5%, to 7,802.

Major indexes are on track for weekly gains and are solidly higher for the month.

What’s driving the market?

Tech shares were the biggest losers after Broadcom AVGO, -6.07% lowered its outlook for the rest of the year 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 concerned about trade policy. Broadcom shares fell 6.2%.

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

Trade tensions continued to rattle executives outside the technology sector, too, as a group of more than 600 companies, including Walmart Inc. WMT, +0.65% and Target Corp. TGT, -0.34% signed a letter to President Trump Thursday afternoon urging him to remove tariffs on Chinese imports.

The market’s weaker tone was also blamed in part on 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.

Investors continued to watch developments in the Middle East after a pair of oil tankers were attacked near the Strait of Hormuz on Thursday. 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, +0.50% rose 0.5% Friday.

What data were in focus?

U.S. retail sales data, which rose 0.5% in May, slightly below the 0.7% gain expected by economists polled by MarketWatch, partly contributed to dampening sentiment. More important was the revision of April sales, which the Commerce Department now says rose 0.3%, versus the previously estimated 0.2% decline.

While strong data are indicative of a robust economy, some investors are likely disappointed as they could lower the chances that the Federal Reserve will cut interest rates this summer.

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.

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 note. “The Chinese data overnight was not good, and the country is clearly feeling the trade war pinch.”

What companies are in focus?

Chewy Inc. CHWY, +55.09%  shares surged 60% to $35.15 on their debut on the New York Stock Exchange. The stock was priced at $22 a share, above the initially targeted range of $17 to $19, due to strong demand.

Read: Chewy IPO: 5 things to know about the ‘pet humanization’ products seller

Facebook Inc. FB, +2.00% shares rose 1.9% 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, +0.40% Mastercard Inc. MA, -0.25% PayPal Holdings Inc. PYPL, +0.59% and Uber Technologies Inc. UBER, -1.74%  

How are other markets trading?

The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.13% was roughly flat at 2.087%.

Asian markets closed mostly lower 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 fell with the Stoxx Europe 600 SXXP, -0.40% off 0.4%.

Gold futures GCN19, +0.09% settled slightly higher and the U.S. dollar DXY, +0.55% firmed against a basket of its peers.

—William Watts contributed to this report