Dow closes lower as Applied Materials leads semiconductor selloff

US stocks ended lower on Friday as investors locked in profits following a record-setting rally, while weaker-than-expected retail sales data and renewed pressure on semiconductor shares weighed on sentiment.

The S&P 500 fell 0.2% to close at 7,785.76 after setting fresh record highs earlier in the week.

The Nasdaq Composite also declined 0.3% to 26,729.16, while the Dow Jones Industrial Average lost about 108 points, or 0.2%, to finish at 53,732.41.

Despite Friday's pullback, the S&P 500 recorded its third consecutive weekly gain, rising 0.4% for the week.

The Nasdaq also posted a third straight weekly advance, while the Dow ended the week 0.6% lower.

Applied Materials leads semiconductor decline

Applied Materials weighed heavily on the broader market after investors reacted negatively to the company's latest earnings outlook despite an upbeat quarterly forecast.

The chip equipment maker, whose shares have doubled so far in 2026 amid strong artificial intelligence-related demand, led declines across the semiconductor sector.

Other AI-linked chip stocks, including Broadcom and Intel, also moved lower as investors remained cautious about elevated valuations following a strong rally in technology shares.

The weakness in semiconductor stocks came despite robust corporate earnings.

According to LSEG, aggregate second-quarter earnings for S&P 500 companies have surged 52%, driven largely by technology giants such as Amazon and Microsoft.

With more than 90% of S&P 500 companies having reported quarterly results, earnings growth is tracking around 50% from the same period a year earlier, according to FactSet.

Meanwhile, Reddit surged after the social media platform was selected to join the S&P 500 index effective Aug. 18.

Shares of drone makers including Red Cat and Unusual Machines also gained after President Donald Trump announced tariffs on imported drones and drone components.

Weak retail sales add to economic concerns

Economic data released Friday pointed to softer consumer activity.

US retail sales unexpectedly declined in July after a 0.2% increase in June, while the University of Michigan's preliminary consumer sentiment index fell to 51 in August, below economists' expectations of 54.5.

The weaker economic data followed this week's inflation reports, which largely matched expectations and reinforced market expectations that the Federal Reserve will leave interest rates unchanged at its September policy meeting.

According to CME FedWatch data, traders now see a 67% probability that the central bank will hold rates steady next month, with a 33% chance of another rate increase.

Energy stocks gain as oil prices rise

While technology shares struggled, energy stocks outperformed as crude oil prices advanced amid renewed geopolitical tensions in the Middle East.

Transit through the Strait of Hormuz remained severely disrupted after additional attacks on vessels, while the United States reiterated that it could maintain a naval blockade of Iran indefinitely.

Those developments supported higher oil prices and lifted the S&P 500 energy sector.

The broader market also continued to trade at elevated valuations despite Friday's decline.

The S&P 500 is currently valued at roughly 20 times expected earnings, above the multiple at the end of July but below levels seen at the beginning of 2026.

Workday shares retreated after soaring in the previous session following reports that private equity firm Silver Lake is in discussions to acquire the software company.