NEW YORK — Wall Street ended Friday modestly lower, pulling back from Thursday’s record as investors confronted a combination the market has been trying to avoid: a weakening U.S. consumer at the same time energy costs are moving higher.

The S&P 500 fell 0.17% to 7,785.58, retreating from Thursday’s record close. The Dow Jones Industrial Average lost 107.46 points, or 0.20%, to 53,732.53, while the Nasdaq Composite fell 0.28% to 26,729.16.

The declines were relatively small, and the S&P 500 and Nasdaq still finished the week higher. But Friday changed the conversation after several sessions dominated by encouraging inflation data.

The biggest economic surprise came from the American shopper.

U.S. retail sales unexpectedly fell 0.6% in July, the first monthly decline in nine months and the largest drop in more than a year. The closely watched control group used in calculating gross domestic product also declined, suggesting the weakness extended beyond volatile categories.

That matters because consumers account for the majority of U.S. economic activity. For months, households have complained about high prices while continuing to spend. Friday’s report provided more concrete evidence that some consumers may finally be reducing what they buy.

Consumer confidence reinforced the concern. The University of Michigan’s preliminary sentiment index fell to 51.0 in August from 55.2 in July, substantially below economists’ expectations.

Ordinarily, weaker economic data can help stocks because it reduces the likelihood that the Federal Reserve will raise interest rates.

Friday showed the other side of that equation.

Investors now have to determine whether the economy is slowing just enough to bring inflation under control — or enough to begin damaging corporate sales and profits.

Oil complicated the picture further.

Brent crude climbed 1.7% to $88.52 a barrel as continued uncertainty surrounding Iran and tanker traffic through the Strait of Hormuz kept fears of supply disruptions alive.

Higher oil creates a particularly difficult combination for businesses. It can increase transportation, manufacturing and distribution costs while simultaneously taking money away from consumers through higher gasoline and energy bills.

Technology stocks were another drag on the major indexes.

Applied Materials dropped roughly 5% even after the semiconductor-equipment company reported strong results and issued an upbeat forecast. The reaction highlighted how demanding expectations have become for companies connected to the artificial-intelligence investment boom.

Broadcom also fell sharply as investors pulled money from some highly valued semiconductor names.

One of Friday’s biggest winners, meanwhile, had little to do with earnings.

Reddit surged more than 12% after being selected to join the S&P 500. The addition takes effect before trading begins Tuesday, August 18, forcing many index funds and investment products that track the S&P 500 to purchase Reddit shares.

Drone companies also rallied after President Donald Trump said the United States would impose tariffs on imported drones and components. Unusual Machines jumped more than 20%, while Red Cat also posted a strong gain.

The bond market added another wrinkle. The 10-year Treasury yield rose to about 4.69%, meaning investors were simultaneously confronting softer consumer data, higher oil and borrowing costs that remain elevated.

Friday therefore leaves Wall Street with a more complicated economic picture heading into next week.

Inflation has cooled enough to ease some pressure on the Federal Reserve, but the consumer may also be cooling faster than investors anticipated.

That puts an even brighter spotlight on the next wave of corporate earnings. Walmart, Home Depot, Target and Lowe’s are among the major consumer-facing companies preparing to report, giving investors a direct look at what Americans are buying, what they are cutting back on and how much pricing power businesses still have.

For companies outside Wall Street, Friday’s message may be even more important than the modest decline in stock indexes.

Lower inflation is good. Lower interest rates would be good.

But neither matters nearly as much if the customer starts spending less.

JBizNews Desk | New York

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