U.S. retail data declines, storage chip stocks rise amid AI funding concerns

Article by: Tide Research

Last Friday, U.S. equities retreated, with the S&P 500 falling 0.18% to 7,785.76, pulling back slightly from Thursday’s all-time high; for the week, it gained 0.36%. The Dow Jones Industrial Average closed down 0.20% at 53,732.41, ending the week down 0.56%. The Nasdaq Composite closed down 0.28% at 26,729.16, but rose 0.14% for the week. The VIX stood at 16.36, down 0.52%.

The key factor dragging down the broader market was the unexpected negative reading in U.S. July retail sales, which declined 0.6% month-over-month—the largest monthly drop since May 2025—far below the market expectation of a 0.1% increase. The main drags were reduced automobile purchases and a slowdown in online retail. Following the data release, expectations for a September rate hike were further diminished, pushing the U.S. dollar index close to its lowest level in over two months. However, U.S. Treasury yields rose instead: the 10-year yield climbed to 4.697%, up about 5 basis points on the day and approximately 4 basis points for the week; the 2-year yield rose to 4.182%, up about 3 basis points intraday. Weak retail data should have lowered rate cut expectations and pressured yields downward, yet yields moved higher.

At the sector level, memory chip stocks continued to lead the gains, with SanDisk rising over 7% and climbing 35% for the week, while SK Hynitz surged more than 20% in the same period. The optical communications sector rebounded, with Lumentum up over 5%. The energy sector rose more than 7% for the week, supported by consecutive oil price increases. However, concerns over AI funding surged sharply, causing Broadcom to close nearly 6% lower and ending the chip index’s three-week winning streak.

Retail sales in July declined by 0.6% month-over-month, marking the largest single-month drop since May 2025 and significantly below the market expectation of a 0.1% increase. Consumer data is a key indicator of U.S. economic resilience; the stronger-than-expected weakness in July has shaken market confidence in a soft landing.

On the same day, the Federal Reserve unexpectedly paused its Reserve Management Purchases (RMP) program. Bank of America expects RMP to remain at zero in September and potentially resume at $10 billion per month for the remainder of the year; TD Securities believes the pause is not a precursor to quantitative tightening and that the Fed could resume RMP at $5 billion to $10 billion per month as early as November.

Weak retail data combined with the suspension of RMP has led to a rare "split" in the Fed's policy signals: while economic data is cooling, liquidity tools are tightening. The 10-year U.S. Treasury yield rose to 4.697% and did not decline despite weak retail data; the changing shape of the yield curve indicates that bond markets are pricing in "persistent inflation and supply pressures," rather than a simple economic recession.

Memory chip stocks were the strongest sector last week. SanDisk rose 35% for the week, SK Hynitz gained over 20% in one week, and SanDisk surged more than 7% on Friday alone.

Last week, SK Hynix Chairman Choi Tae-won explained the logic behind this surge, stating that demand for memory chips is experiencing "explosive" growth, with customers requesting volumes nearly double their previous needs—yet supply is completely unable to keep up. He candidly admitted, "Prices are rising too fast, and I truly regret this." He predicted that next year will be the year with the largest supply shortfall, as AI-era memory demand is growing exponentially; even doubling production capacity over the next five years may still fail to meet demand. The memory chip shortage is now spreading from the industrial sector to the consumer market.

SK Hynix also revealed that, over the past month, it has conducted intensive site evaluations in the United States for potential front-end memory wafer factories, directly addressing the urgent demand from U.S.-based AI chip customers for supply chain localization.

After SanDisk presented long-term high-growth targets at its Investor Day, its stock broke away from market skepticism and moved independently over the week. The strength in the storage sector is grounded in the fundamental logic that the supply-demand gap cannot be quickly resolved, sharply contrasting with Broadcom’s decline driven by concerns over AI funding. Within the same AI sector, capital is chasing gains in storage while exiting Broadcom.

Broadcom was the biggest drag on the AI sector last Friday. Bank of America estimates that Broadcom’s chip financing program could generate approximately $370 billion in senior debt by mid-2029 to fund 20 GW of computing power, potentially adding around $150 billion in debt just in 2027.

Bank of America did not dispute Broadcom's underlying business fundamentals, but the market is beginning to recognize that if future AI computing demand relies on increasingly large financing platforms, the valuation logic of the AI industry must also account for asset residual value, customer default rates, debt costs, and supplier guarantee obligations.

Broadcom's decline echoes NVIDIA's earlier announcement of reducing its financial guarantee for OpenAI's data center projects. Reports indicate that NVIDIA and OpenAI are nearing a financing agreement for a data center in Ohio, but NVIDIA's financial guarantee has been cut from $250 billion to less than $120 billion. The market is reassessing the "leverage narrative" surrounding AI financing.

Geopolitical tensions continue to support oil prices. Trump stated that after defeating Iran, he would declare the Strait of Hormuz as U.S. territory; Iran responded firmly, calling the remark "entirely born of his personal delusion." Iranian Foreign Minister Alirzae stated that Iran has not yet decided whether to resume negotiations with the U.S., and restoring passage through the strait requires favorable conditions. The U.S. Treasury Secretary also threatened economic sanctions against Iran, further increasing the risk premium on crude oil.

WTI crude oil closed up 1.42% at $82.40 per barrel last Friday, rising approximately 6% for the week; Brent crude oil closed up 1.67% at $88.52 per barrel, rising approximately 7% for the week.

There is no sign of narrowing differences between the U.S. and Iran on the Hormuz issue, making it difficult to eliminate the geopolitical premium on oil prices in the short term.

Gold rose for the second consecutive week. COMEX gold futures closed up 0.39% at $4,380.4 per ounce on Friday, gaining 0.91% for the week. Weak retail data and a weaker dollar supported gold, but rising U.S. Treasury yields limited gains. In Asian trading on Monday, spot gold opened at $4,384 per ounce, up 0.2% on the day.

Bitcoin briefly rose to $64,000 over the weekend and retreated to around $63,047 during Monday’s Asian session, remaining essentially flat over the past 24 hours. Digital assets are still awaiting clearer macroeconomic signals.

This week, the key market variables are moving in three directions.

First, the Federal Reserve meeting minutes. At 2:00 AM Beijing time on Thursday, the Fed will release the minutes of its July FOMC policy meeting. At its July 29 meeting, the Fed held rates steady for the fifth consecutive time, though three members voted against the decision, favoring a 25-basis-point rate hike. The minutes will reveal the extent of internal disagreements among policymakers regarding inflation, employment, and the path of interest rates, as markets seek further clues about the pause in RMP.

Second, earnings reports from retail giants and Chinese-listed companies. This week, major retailers such as Home Depot, Lowe’s, and Target will release their earnings. July retail sales already came in weaker than expected; the earnings reports and guidance from these retailers, positioned at the end of the supply chain, will help the market assess the true extent of consumer slowdown. Among Chinese-listed companies, prominent names like Alibaba and Baidu will also report earnings. Against the backdrop of the Golden Dragon Index consistently underperforming, these reports will test whether global capital’s sentiment toward Chinese-listed stocks is showing any marginal shift.

Third, the sustainability of the storage sector. After a 35% surge in one week, SanDisk's stock is now in overbought territory. SK Hynix’s chairman candidly remarked that prices are rising too quickly, which serves as a reminder to the market that the pace of increase has exceeded normal levels. If profit-taking occurs this week, it will be an opportunity to test the fundamental strength of the storage sector.

The S&P 500 has encountered dual resistance near its all-time high, with retail data turning negative and RMP suspensions. Currently, about 85% of S&P constituent companies have reported earnings above expectations, and strong corporate results have helped the market contain volatility. However, after reaching new highs, fresh catalysts are needed; this week’s meeting minutes and retail earnings reports will determine whether the market continues upward after absorbing these headwinds or enters a deeper correction.