Dow closes lower as Applied Materials leads semiconductor selloff

• Applied Materials dragged chip stocks lower as investors reacted negatively to its earnings outlook despite strong results; Broadcom and Intel also declined amid valuation concerns following the tech rally
• US retail sales unexpectedly declined in July and consumer sentiment fell to 51 in August (below expectations of 54.5), reinforcing expectations for a Fed rate pause in September with 67% probability
• Energy stocks gained as Iran tensions disrupted transit through the Strait of Hormuz and lifted oil prices, offsetting weakness in technology sectors

Market Summary: Dow Closes Lower on Semiconductor Weakness

Key Market Movements

U.S. equities closed lower Friday, with the S&P 500 down 0.2% to 7,785.76, the Nasdaq declining 0.3% to 26,729.16, and the Dow dropping 108 points (0.2%) to 53,732.41. Despite the pullback, the S&P 500 posted its third consecutive weekly gain of 0.4%, while the Dow fell 0.6% for the week.

Semiconductor Sector Under Pressure

Applied Materials (AMAT) led the semiconductor selloff after investors reacted negatively to its earnings outlook despite strong quarterly results. The weakness spread across chip stocks, with Broadcom and Intel also declining. This sector pressure occurred despite robust overall earnings, with S&P 500 Q2 earnings surging 52%, driven by tech giants like Amazon and Microsoft. Over 90% of companies have reported earnings growth tracking around 50% year-over-year.

Economic Data and Fed Outlook

July retail sales unexpectedly declined following a 0.2% June increase. The University of Michigan consumer sentiment index fell to 51 in August, below the expected 54.5. These weak indicators, combined with in-line inflation reports, reinforced expectations for a September Fed rate pause. CME FedWatch shows a 67% probability of unchanged rates and 33% chance of an increase.

Energy Sector Gains

Energy stocks rose as oil prices climbed amid escalating Iran tensions. Disrupted transit through the Strait of Hormuz and potential U.S. naval blockade supported the rally.

Valuation Context

The S&P 500 currently trades at approximately 20 times forward earnings, above July levels but below early 2026 valuations, indicating continued elevated market multiples despite recent concerns.