NEW YORK — U.S. stocks are drifting near their record heights Friday following the latest report on the economy to come in surprisingly weak, this time about how much shoppers are spending at retailers. Such data could keep interest rates low, which is something Wall Street loves, but it also raises the risk of a slowing economy when inflation is still high.
The S&P 500 slipped 0.2% from its all-time high set the day before. The Dow Jones Industrial Average was down 111 points, or 0.2%, as of 12:46 p.m. Eastern time, and the Nasdaq composite was 0.4% lower.
Stocks gave up modest gains from earlier in the morning after oil prices swung higher. The price for a barrel of Brent crude rose 1.1% to $88 as uncertainty continues about when the war with Iran will allow oil tankers to freely exit the Persian Gulf again.
Also raising uncertainty was a report showing shoppers spent less at U.S. retailers last month than the month before. That surprised economists, who were forecasting another month of growth.
On the bright side for financial markets, such a pullback in spending could take pressure off inflation. Inflation remains much higher than anyone would like, but reports earlier this week suggested the pace of increases in prices is decelerating.
If inflation keeps trending that way, it could encourage the Federal Reserve to hold off on hikes to interest rates. Higher rates would help keep a lid on inflation, but they do so by intentionally slowing the economy and making it more expensive for everyone to borrow money.
But the downside of such data, including last week’s surprisingly weak report on the U.S. job market, is that they raise the risk of a slowing economy. The Fed has no good tool to fix both a stagnating economy and high inflation at the same time, which is why what’s called “stagflation” is seen as a worst-case scenario.
Some on Wall Street cautioned against overreacting to the weak data on U.S. retail sales, even if it was broad based. It could simply be a snap back after retail sales in earlier months were boosted by unusual factors such as big tax refunds, the World Cup and even an earlier Prime Day event at Amazon, according to Jennifer Timmerman, senior investment strategy analyst at Wells Fargo Investment Institute.
U.S. consumers nevertheless appear to be getting more discouraged about the economy. A preliminary survey by the University of Michigan suggested sentiment among them is weakening by more than economists expected.
The survey said drops occurred across the political spectrum and showed up particularly among older, lower-income and other groups who can be hurt most by inflation.
On Wall Street, Reddit jumped 11.7% after learning its stock will join the S&P 500 index on Tuesday. Many professional investors and funds closely track the index, either mimicking it or at least measuring their performance against it. That can push many investors to buy a stock automatically when it enters the index.
Applied Materials fell 4.9% even though the company, whose technology helps make semiconductors, reported stronger profit and revenue for the latest quarter than analysts expected. CEO Gary Dickerson said global hunger for artificial-intelligence technology helped it deliver another record quarter.
But its stock had already more than doubled this year and built expectations very high, which helped pressure the stock on Friday.
AI stocks in general have been swinging sharply on worries that their prices shot too high because of AI euphoria and that their strong growth in revenue may not be sustainable.
In the bond market, shorter-term Treasury yields edged lower following the retail sales report, suggesting traders see the Fed as less likely to hike interest rates at its next meeting in September.
But the yield on the 10-year Treasury, which moves more on expectations for inflation and economic growth in upcoming years, rose to 4.69% from 4.63% late Thursday.
In stock markets abroad, indexes were mixed in Europe and Asia.
London's FTSE 100 slipped 0.2% after Nigel Farage regained the seat in Parliament he quit a month ago, beating trash-can wearing comic candidate Count Binface in a special election.
South Korea’s Kospi again had one of the world’s sharpest moves and jumped 2.4% for its third straight gain of at least that much. Seoul has been at the center of the world’s swings for AI stocks because its market is dominated by two tech giants, Samsung Electronics and SK Hynix.
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AP Business Writers Michelle Chapman and Elaine Kurtenbach contributed to this report.
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