By Ellie Ismailidou and Victor Reklaitis, MarketWatch

But weak data on retail sales, wholesale prices weigh on the benchmarks

U.S. stocks pared early losses on Friday led by gains in energy stocks as oil prices rose, but all three main benchmarks were still below the record levels they set a day earlier. Investors grappled with weaker-than-expected retail sales data and an unexpected drop in wholesale prices.

The main indexes were on track to finish the week with small gains, while the Nasdaq is looking at its seventh straight up week.

The S&P 500 index was down 2 points at 2,184, weighed by a 0.6% drop in materials shares, followed by a 0.3% loss in the health-care sector. Three of the index's 10 sectors were in positive territory, with energy leading the gains, up 0.7%.

The Dow Jones Industrial Average slipped 33 points, or 0.2%, to 18,580, pulled down by a 1.1% drop in Microsoft Corp.(MSFT) but buoyed by a 1.1% gain in Exxon Mobil Corp.(XOM)

Meanwhile the Nasdaq Composite Index was off 4 point, or less than 0.1%, at 5,225.

U.S. retail sales stalled in July after three straight monthly gains, according to government data released Friday. (http://www.marketwatch.com/story/retail-sales-stall-in-july-2016-08-12)Retail sales, which have increased 2.3% over the past 12 months, are an important part of consumer spending, which is the backbone of the U.S. economy.

Meanwhile, U.S. wholesale prices fell 0.4% in July, the biggest drop since September 2015, according to a government report released Friday (http://www.marketwatch.com/story/us-wholesale-prices-fall-sharply-in-july-2016-08-12). (http://www.marketwatch.com/story/us-wholesale-prices-fall-sharply-in-july-2016-08-12) June business inventories (http://www.marketwatch.com/story/us-june-business-inventories-rise-02-2016-08-12-10103229) came in as expected, rising 0.2%, and the Producer Price Index was down 0.4% after jumping 0.5% in June, while over the past year overall producer prices are down 0.2% in unadjusted terms.

On the bright side, consumer sentiment ticked up (http://www.marketwatch.com/story/consumer-sentiment-ticks-up-in-august-despite-higher-expenses-lower-wage-gains-2016-08-12) in early August as better views of the economy offset declines in views about personal finances.

While stocks turned negative after the release, gold gained, the dollar slumped and Treasury yields plunged to their second-lowest level in history. The weak data are likely to firm the view for some market participants that the economy isn't strong enough to tolerate a rate increase in September, or later in 2016.

"Based on the PPI and retail-sales figures, all indications now look like a [Federal Reserve] rate increase in 2016 is clearly off the table," said Tom di Galoma managing director at Seaport Global Holdings, in an email shortly after the release.

Sector performance also reflected the market's expectation of interest rates being "lower for longer," said Diane Jaffee, senior portfolio manager at TCW. Investors betting the Fed will remain on hold, pile into bond-like equities, most notably utility stocks, Jaffee said.

But at the same time, the strong gains in energy shares tells a different story, one of a potentially stronger risk appetite and further gains for the broader market, she said.

Among individual retailers, J.C. Penney Co. Inc.'s (JCP) shares gained 3.5% after the retailer reported narrower-than-expected second-quarter losses, though sales were just below estimates (http://www.marketwatch.com/story/jc-penney-shares-fall-despite-smaller-second-quarter-losses-2016-08-12). Meanwhile, Nordstrom Inc.(JWN) shares jumped 8.3% after posting better-than-expected sales and raised profit projections for the year (http://www.marketwatch.com/story/nordstrom-profit-tops-view-as-revenue-declines-2016-08-11).

Friday's moves came after on Thursday retailers like Macy's Inc.(M) and Kohl's Corp.(KSS) all posted better-than-expected quarterly earnings, (http://www.marketwatch.com/story/nordstroms-stock-soars-amid-hopes-for-upbeat-results-for-a-change-2016-08-11) (http://www.marketwatch.com/story/nordstroms-stock-soars-amid-hopes-for-upbeat-results-for-a-change-2016-08-11)helping the broader market jump to all-time highs. Macy's was down 0.5% on Friday, after closing 17% higher on Thursday, while Kohl's on Friday added 1.8% to Thursday's 16% gain.

See:3 reasons this U.S. stock-market rally won't stop (http://www.marketwatch.com/story/this-time-its-different-3-reasons-the-us-stock-rally-wont-stop-2016-08-12)

Other markets: Oil futures moved decidedly higher following choppy action earlier, as Saudi Arabia sparked fresh hopes for a collective production freeze (http://www.marketwatch.com/story/oil-prices-extend-gains-after-saudi-hints-over-freeze-pact-2016-08-12). Crude is on track for a weekly gain of over 6%.

Asian markets closed higher, with some credit going to the upbeat U.S. action on Thursday. But European stocks were roughly flat (http://www.marketwatch.com/story/european-stocks-battle-for-the-black-and-another-win-2016-08-12), though still on track for sizeable weekly gains.

Economic news: Oil prices and energy stocks could move at 1 p.m. Eastern, when an update on North America's oil-rig count is expected.

Other individual movers: Beyond the retailers, Nvidia Corp. shares (NVDA) rose 4.2% after the maker of graphics chips late Thursday posted better-than-expected earnings (http://www.marketwatch.com/story/nvidia-rises-to-record-highs-before-and-after-earnings-report-2016-08-11).

Silicon Graphics International Corp.(SGI) jumped 29% following news late Thursday that Hewlett Packard Enterprise Co.(HPE) plans to pay $275 million (http://www.marketwatch.com/story/hewlett-packard-enterprise-buying-silicon-graphics-for-275-million-2016-08-11) for the maker of server, storage and software products.

 

(END) Dow Jones Newswires

August 12, 2016 11:48 ET (15:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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