Broadcom drops 6.7% as weak consumer data hits chip stocks

The S&P 500 slipped 0.19% and the Nasdaq fell 0.44% after July retail sales dropped 0.6%, the first decline in nine months.

Economists had forecast a 0.1% gain in retail sales. Core retail sales, which most closely correspond to the consumer spending component of GDP, dropped 0.4% versus expectations of a 0.3% increase. The University of Michigan's preliminary consumer sentiment index for August came in at 51.0, well below the 54.5 consensus and down from 55.2 in July. One-year inflation expectations ticked up to 4.3%, adding to the pressure on the Federal Reserve's policy calculus.

Broadcom fell 6.7%, its largest single-day drop since June 5 and the biggest in 14 years for the broader retail sales report. The stock gave up roughly $105 billion in market value — the single largest drag on both the S&P 500 and the Nasdaq. Applied Materials dropped 4% despite guiding revenue above expectations, a familiar pattern this week. On the Dow, Goldman Sachs slipped 0.7% for about 43 points and Amgen fell 1.3% for another 33.

Part of the retail sales decline is a technicality. Amazon moved Prime Day to June this year, pulling sales out of July and knocking nonstore retailers down 2.2%. Many e-tailers followed Amazon's shift, keeping their discount events close to the e-commerce titan's calendar. The less comfortable explanation is that this spring's generous tax refunds were already spent, leaving consumers with less firepower heading into the back half of the year.

The combination of weak confidence and persistent inflation expectations creates an uncomfortable backdrop for the Federal Reserve. With one-year inflation expectations at 4.3% and consumer spending showing signs of strain, the central bank faces a narrowing path between supporting growth and containing prices. The data also complicates the Fed's messaging on rate cuts, as policymakers weigh softening demand against inflation that remains above the 2 percent target.

Chip stocks did most of the damage to the index. Broadcom's decline follows a volatile week for the semiconductor sector, with the stock up on memory chip news yesterday before today's reversal. Applied Materials' drop despite strong guidance reflects a pattern seen across the sector this week, where positive earnings have failed to hold gains. The semiconductor weakness rippled through the broader technology complex, with the Nasdaq falling roughly twice as far as the other major indices.

The Dow saw no single move of 2.5% or more today, a quiet session across the board. All three major indices hovered around the flatline for the first half hour before turning negative shortly after 10 a.m. ET, grinding steadily lower through mid-morning. The Nasdaq broke away from the other two mid-morning and fell roughly twice as far, with the decline concentrated in technology and semiconductor names.

For investors, the question now is whether the consumer slowdown is a one-month blip or the start of a broader trend. The retail sales data, combined with the drop in consumer sentiment, suggests the American consumer — who has carried the economy for months — is beginning to feel the strain of persistent inflation and depleted savings. If the trend continues, it could force the Fed to prioritize growth over inflation, potentially accelerating the timeline for rate cuts.

This article is for informational purposes only and does not constitute investment advice.