Dow, S&P 500 edge higher after soft retail sales data; eyes on Fed speakers

By Lisa Pauline Mattackal and Ankika Biswas

(Reuters) -The Dow and the S&P 500 inched up on Tuesday with investors focusing on softer-than-expected U.S. retail sales numbers and commentary from a slew of Federal Reserve officials throughout the day, though trading was subdued ahead of a market holiday.

Data showed U.S. retail sales rose 0.1% in May, versus the 0.3% increase expected by economists polled by Reuters, while a separate report showed May industrial production and manufacturing output both beat expectations.

Markets slightly increased bets on two interest rate cuts from the Fed this year following the data, according to LSEG's FedWatch, clashing with the most recent projections from policymakers showing they broadly expect just one interest rate cut this year.

"The May retail sales report may have threaded the needle, delivering investors a soft reading without being too weak ... this is a good thing for the Fed and those who are looking for rate cuts later this year," said Bret Kenwell, U.S. investment analyst at eToro.

Chip stocks continued their recent rally, boosting the Philadelphia SE Semiconductor index to a record high.

Nvidia, Qualcomm, Arm Holdings and Micron were up between 2.7% and 4.5%, with Micron hitting a record high.

The Nasdaq inched lower after six consecutive record closing highs, with losses in Alphabet, Amazon and Meta Platforms offseting chip stock gains.

Markets are shut on Wednesday for the Juneteenth holiday.

Energy was the top S&P 500 sector gainer, up 1.5%, while communication services was the worst hit.

Focus is also on comments from several Fed officials throughout the day. New York Fed President John Williams said rates will come down gradually over time, while Richmond Fed's Thomas Barkin said he required more months of economic data before supporting a rate cut.

Hopes for multiple rate cuts this year, enthusiasm for AI-linked companies and strong earnings from other tech firms have supported equities over the past months, though gains have been largely driven by a few heavily weighted stocks.

However, weakening data has also started to raise concerns about the economy's underlying health.

"If it's bad economy news, we're going to get a rate cut which is good for stocks ... but it could actually mean bad news for companies," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

Citigroup raised the year-end target for the S&P 500 to 5,600 points from 5,100.

At 11:55 a.m. ET, the Dow Jones Industrial Average was up 12.52 points, or 0.03%, at 38,790.62, the S&P 500 was up 6.61 points, or 0.12%, at 5,479.84, and the Nasdaq Composite was down 20.08 points, or 0.11%, at 17,836.94.

Edtech company Chegg jumped 14.5% after announcing job cuts as part of a restructuring plan.

Homebuilder Lennar fell 4.6% after forecasting lower-than-expected third-quarter home deliveries.

Advancing issues outnumbered decliners by a 1.92-to-1 ratio on the NYSE and by a 1.07-to-1 ratio on the Nasdaq.

The S&P index recorded 41 new 52-week highs and two new lows, while the Nasdaq recorded 49 new highs and 128 new lows.

(Reporting by Lisa Mattackal and Ankika Biswas in Bengaluru; Editing by Shounak Dasgupta and Maju Samuel)