S&P 500 ends lower as investors weigh data, Middle East tensions

The S&P 500 closed lower on Friday, dipping from record highs as investors digested weaker-than-expected July retail sales and rising geopolitical tensions in the Middle East. The index fell 13.41 points, or 0.17%, to finish at 7,785.58. The Nasdaq Composite lost 73.86 points, or 0.28%, to 26,729.16, while the Dow Jones Industrial Average slid 108.53 points, or 0.20%, to 53,732.53.

"A lot of the drivers in the market right now are around various parts of AI, and (Applied Materials) is an example of a company that had a 'beat and raise' but expectations were high and so the stock sold off," said Thomas Martin, senior portfolio manager at GLOBALT Investments in Atlanta.

Applied Materials was one of the day's largest drags after its upbeat quarterly forecast failed to satisfy investors; the chip equipment maker's shares have doubled so far in 2026 amid strong demand tied to the buildout of AI data centers. Broadcom and Intel also fell, as investors grew cautious about richly valued AI-related names. Overall, aggregate earnings for S&P 500 companies surged 52% in the second quarter, largely driven by Amazon, Microsoft and other AI heavyweights, according to LSEG data cited by market analysts.

• Retail data: July retail sales came in weaker than expected, after an unrevised 0.2% gain in June, the Census Bureau reported.
• Economic sentiment: The University of Michigan's preliminary consumer sentiment index for August registered 51, below economists' expectation of 54.5.
• Interest-rate outlook: Traders placed a 67% probability on the Federal Reserve holding rates steady at its September meeting, with a 33% chance of a hike, per CME's FedWatch tool.

Geopolitical developments contributed to market unease. Transit through the Strait of Hormuz appeared near a standstill after two more ships were attacked, and U.S. officials signaled it could maintain a naval blockade of Iran indefinitely. A senior Iranian source said there had been no progress in talks to build on a June agreement to end the war, adding to investor caution. The S&P 500 energy index rallied on higher oil prices as nerves over Middle East disruptions pushed energy stocks upward.

Corporate and sector moves added to the market narrative. Reddit surged after being named a new addition to the S&P 500, effective August 18. Workday reversed some of the prior day's gains and dipped after soaring 18% on Thursday when reports surfaced that private equity firm Silver Lake was in talks to acquire the software firm. Some drone makers—Red Cat and Unusual Machines—jumped after President Donald Trump said he would impose tariffs on imports of drones and their components.

Market valuation metrics remained in focus: with the S&P 500 trading just below record highs, the index was valued at roughly 20 times expected earnings, up from about 19 at the end of July and below 22 at the start of 2026. Analysts note that while strong AI-driven profits have lifted headline earnings, elevated valuations and geopolitical uncertainty could weigh on near-term performance.

Looking ahead, investors will watch incoming economic data and developments in the Middle East for cues on risk appetite and monetary policy. The pace of AI-driven spending and corporate guidance in coming quarters will also be central to market direction as participants weigh stretched valuations against earnings momentum from major technology firms.