(Updates with afternoon trading)

* 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

* S&P 500 -0.21%, Nasdaq -0.41%, Dow -0.15%

By Noel Randewich and Purvi Agarwal

Aug 14 (Reuters) - The S&P 500 dipped from record highs on

Friday, weighed down by Applied Materials ( AMAT ), while investors

digested weaker-than-expected retail sales data and transit

through the Strait of Hormuz was mostly closed.

Applied Materials ( AMAT ) fell 5.5% 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, Broadcom ( AVGO )

dropped 6.8% and the Philadelphia SE Semiconductor index

fell 1.2%.

"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 rose 1.4%, tracking higher

oil prices.

Reddit ( RDDT ) surged more than 10% after the social media

company was named a new addition to the S&P 500 index, effective

August 18.

Both the S&P 500 and the Nasdaq were on track for their

third consecutive weekly gains, the longest winning streak since

early April, as strong earnings and reduced bets on interest

rate hikes after benign data lifted sentiment.

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

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

Bureau said.

The S&P 500 was down 0.21% at 7,782.71 points after notching

a record high close on Thursday.

The Nasdaq declined 0.41% to 26,692.65 points, while the Dow

Jones Industrial Average was down 0.15% at 53,761.28 points.

While inflation related to high oil prices remains a

concern, recent economic data has investors mostly expecting the

Federal Reserve will hold interest rates steady at its meeting

in September. 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. For all of 2027, analysts project a 34%

increase in earnings, up from a projection of 27% at the start

of July.

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 slipped 3.1%. Reuters reported on Thursday 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 that he would impose tariffs on imports of

drones and their components. Red Cat ( RCAT ) rallied 6.3% and

Unusual Machines ( UMAC ) jumped 22%.

Across the U.S. stock market, declining stocks

outnumbered rising ones by a 1.1-to-1 ratio.

The S&P 500 posted 13 new highs and one new low; the Nasdaq

recorded 73 new highs and 56 new lows.