(Updates with market close)

* July retail sales unexpectedly fall

* Reddit ( RDDT ) soars on S&P 500 inclusion announcement

* Drone makers gain after Trump plans tariffs on drone,

component imports

By Noel Randewich

Aug 14 (Reuters) - The S&P 500 closed lower on Friday,

dipping from a record high and weighed down by Applied

Materials ( AMAT ), while investors digested weaker-than-expected retail

sales data.

Applied Materials ( AMAT ) fell after its upbeat quarterly

forecast failed to impress investors. The chip equipment maker's

shares have doubled in 2026 due to strong demand related to the

buildout of AI data centers.

With investors nervous about high valuations of AI-related

stocks that have soared in recent years, chipmakers including

Broadcom ( AVGO ) and Intel ( INTC ) also dropped on Friday.

"A lot of the drivers in the market right now are around

various parts of AI, and (Applied Materials ( AMAT )) is an example of a

company that had a 'beat and raise' but expectations were high

and so the stock sold off," said Thomas Martin, senior

⁠portfolio manager at GLOBALT Investments in Atlanta.

Transit through the Strait of Hormuz appeared at a near

standstill after two more ships were attacked there and the

United States said it could maintain a naval blockade of Iran

indefinitely. Those developments added to pessimism after a

senior Iranian source said on Wednesday there had been no

progress in talks to build on a June agreement to end the war.

The S&P 500 energy index rallied, tracking higher

oil prices.

Reddit ( RDDT ) surged after the social media company was named

a new addition to the S&P 500 index, effective August 18.

July retail sales data came in weaker than expected, after an

unrevised 0.2% gain in June, the Commerce Department's Census

Bureau said.

According to preliminary data, the S&P 500 lost 13.41

points, or 0.17%, to end at 7,785.58 points, while the Nasdaq

Composite lost 73.86 points, or 0.28%, to 26,729.16. The

Dow Jones Industrial Average fell 108.53 points, or

0.20%, to 53,732.53.

While inflation related to high oil prices remains a

concern, recent economic data has investors mostly expecting the

Federal Reserve to hold interest rates steady at its September

meeting. Traders see a 67% chance the Fed will keep rates

unchanged at the September meeting, with a 33% chance of a hike,

according to CME's FedWatch.

The University of Michigan's preliminary consumer sentiment

survey came in at 51 in August, below expectations of 54.5,

according to economists polled by Reuters.

The aggregate earnings of S&P 500 companies have surged 52%

in the second quarter, with much of that gain coming from Amazon ( AMZN )

, Microsoft ( MSFT ) and other AI heavyweights,

according to LSEG.

With the S&P 500 trading just below record highs, the index

is valued at about 20 times expected earnings. That is up from

about 19 at the end of July and below 22 at the start of 2026.

Workday dipped. The stock soared 18% on Thursday after

Reuters reported that private equity firm Silver Lake was in

talks to acquire the software firm.

Shares of some drone makers gained after President Donald Trump

said late on Thursday he would impose tariffs on imports of

drones and their components. Red Cat ( RCAT ) and Unusual

Machines ( UMAC ) both jumped.