U.S. Stocks Retreat as Broadcom Quantifies Impact of China Trade War

The Dow and broader U.S. stock market drifted lower on Friday after Broadcom Inc.’s disappointing earnings results triggered a steep selloff in the semiconductor industry. The American chipmaker is one of the first companies to quantify the financial impact of a nearly year-long trade dispute with China.

As one would expect, the results aren’t pretty.

Dow, S&P 500, Nasdaq Fall

All of Wall Street’s major indexes finished lower on Friday. After being down more than 100 points, the blue-chip index would eventually pare most of its losses to settle down 17.17 points, or 0.1%, at 26,089.61.

Dow Jones

The broad S&P 500 Index of large-cap stocks finished down 0.2% at 2,886.99. Five of 11 primary sectors reported losses, with information technology companies leading the declines. Within tech, semiconductors and communications equipment makers plunged more than 2%.

Sliding tech shares weighed on the Nasdaq Composite Index, which fell 0.5% to 7,796.66.

Broadcom’s $2 Billion Hit

As The Wall Street Journal reported, Broadcom Inc. (NASDAQ: AVGO) has lowered its annual revenue target by $2 billion less than previously expected due to the U.S. government’s ban on exports to Huawei.

The Chinese telecommunications giant and its affiliates were blacklisted by the U.S. government last month before a 90-day extension was granted. The extension allows American companies to maintain normal business relations with the Chinese telecom to avoid major disruptions. Unless the United States and China can resolve their trade dispute swiftly, the export ban will be re-implemented following the 90-day window.

Broadcom, which generated $900 million in revenue from China last year, reported sales of $5.52 billion for its fiscal second quarter. That was well below the $5.68 billion analysts had expected. The semiconductor giant now expects revenues of $22.50 billion in fiscal 2019, which is well below the $24.31 billion analysts had projected.

Consumer Spending, Industrial Production Rise

Fears of a sharp slowdown in the U.S. economy may have been put to rest on Friday after a pair of government reports showed solid growth in two key segments of the market.

Retail sales climbed 0.5% in May following an upwardly revised gain of 0.3% in April that was originally reported as a decline, the Department of Commerce reported Friday. Excluding automobiles, receipts rose 0.5% month-on-month following a similar increase in April.

Retail sales are a proxy for consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Separately, the Federal Reserve said industrial production rebounded 0.4% in May after falling 0.4% during the previous month. Capacity utilization at U.S. factories rose to 78.1% from 77.9% previously.

The reports have done very little to convince investors that the Federal Reserve will stay the ship on monetary policy. The U.S. central bank is widely expected to cut interest rates at the end of July. Read more here: Dow Returns to Strength as Rate-Cut Bets Swell to 89%.

Featured image courtesy of Shutterstock. Chart via Stockcharts.com. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi