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U.S. equities closed mostly lower on Friday as investors digested disappointing economic data, following a record-setting day on Thursday.
"The market has been on a tear and it got a little bit ahead of itself," said Mark Luschini, chief investment strategist at Janney Montgomery Scott. "I think what you're seeing here is some profit-taking and people squaring their books before the weekend."
The Dow Jones industrial average closed about 40 points lower, with IBM contributing the most losses. The benchmark S&P 500 fell nearly 2 points, with materials lagging, but managed to eke out a slight weekly gain. The Nasdaq composite rose about 0.1 percent and notched a seven-week winning streak, its longest since 2012.
"We had a disappointing retail sales report. ... Perhaps investors are reassessing the state of the economy," said Jack Ablin, chief investment officer at BMO Private Bank, noting investors may also be taking profits after Thursday's strong session.
"It feels like we're a little exhausted here," said Randy Frederick, managing director of trading and derivatives at Charles Schwab, referring to the recent rally in U.S. stocks.
Retail sales for July came in unchanged, with economists expecting a 0.4 percent increase. Meanwhile, the July reading of the producer price index showed a decline of 0.4 percent, as economists forecast a 0.1 percent gain.
"If you look at the retail sales number ex auto, the number is even weaker. We always think that the retail sales data is the true reflection of the consumer spending and the number produced today tells us that consumption is very slow. The number will also an impact on the start of the Third quarter," Naeem Aslam, chief market analyst at Think Markets, said in a Friday note to clients.
"I think this is the first indication of waning momentum for the consumer in the second half," said Lindsey Piegza, chief economist at Stifel Fixed Income. "Looking at the second quarter, its was very clear the consumer was doing the heavy lifting."
That said, Phil Davis, CEO of PSW Investments, said he was not surprised by the weak print in retail sales. "Macy's, which has been in business for [a long time], is closing 100 stores," he said. "We cannot understand ... how this was a surprise to the market."
Investors kept an eye on both retail sales and the PPI, in part, to get clues about the Federal Reserve's next move.
"If you look at Fed funds expectations [before] those releases, December was a coin-flip. Now a rate hike isn't priced in until May, said, Jon Adams, senior investment strategist at BMO Global Asset Management.
On Thursday, the three major indexes closed at record highs, something that had not happened since Dec. 31, 1999.
"We remain modestly overweight stocks on our portfolio," BMO's Adams said, adding, however, "we do notice there's some complacency in the market."
Excluding Thursday, U.S. stocks have traded in a very narrow range this week, with volatility hovering around multi-year lows. The CBOE Volatility index (VIX), widely considered the best gauge of fear in the market, traded about 1.4 percent lower, near 11.5. In afternoon trade Friday, Schwab's Frederick said there were four calls on on the Vix for every put in the options market, which indicates investors think the index "can't go much lower."
Earlier on Friday, the S&P and the Nasdaq briefly traded in positive territory.
"Markets have a lot of trouble going lower on quiet days," said Jeremy Klein, chief market strategist at FBN Securities, noting that investors like to "put money to work" on such days.
Peter Cardillo, chief market economist at First Standard Financial, said "the economic news was not all that bad. ... And you've got oil prices trading higher."
Oil prices rose Friday, with U.S. crude settling at a three-week high of $44.49 a barrel. Baker Hughes said drillers added 15 rigs this week.
U.S. Treasurys rose broadly, with the two-year yield trading around 0.71 percent and the benchmark 10-year yield around 1.51 percent.
The dollar fell against a basket of currencies, with the euro holding around $1.116 and the near 101.28.
Overseas, European stocks traded slightly lower, with the Stoxx 600 index slipping 0.16 percent. Asian equities rose broadly, with the Nikkei 225 and the Shanghai composite both advancing more than 1 percent.
The Dow Jones industrial average fell 37.05 points, or 0.2 percent, to close at 18,576.47, with DuPont leading decliners and ExxonMobil the top advancer.
The closed 1.74 points lower, or 0.08 percent, at 2,184.05, with materials leading seven sectors lower and energy the biggest riser.
The Nasdaq rose 4.5 points, or 0.09 percent, to end at 5,232.89.
Decliners were a step ahead of advancers at the New York Stock Exchange, with an exchange volume of 697.61 million and a composite volume of 2.938 billion at the close.
Gold futures for December delivery settled $6.80 lower at $1,343.20 per ounce.