By Anna Hirtenstein , Xie Yu and Gunjan Banerji
U.S. stocks wavered Friday and headed toward weekly declines.
A wide range of data this week revealed the sharp contraction in economic activity across the nation. Meanwhile, the possibility of renewed trade tensions between the U.S. and China came back to the forefront, igniting concerns about relations between two of the biggest world economies at a time when the U.S. is already facing a massive downturn.
Major indexes fell to start the day but wavered between small gains and losses in recent trading. The Dow Jones Industrial Average was recently down 6 points, or less than 0.2%. The S&P 500 fell 0.2%, and the Nasdaq Composite added 0.1%.
Still, all three major indexes were on track for weekly declines of at least 1.5%.
Industrial production figures for April showed a sharp downturn with an 11.2% drop, roughly in line with analysts expectations. Data released by the U.S. Census Bureau showed retail sales fell a record 16.4% in April from a month earlier, as nonessential stores were forced to close. That surpassed a 12% estimate from economists surveyed by The Wall Street Journal.
"The reality is setting in," said Anwiti Bahuguna, head of multiasset strategy at Columbia Threadneedle Investments. "Perhaps things are not as rosy as sort of this 'V-shaped' recovery that equity markets were implying."
Though U.S. stocks are on track for weekly declines, they have staged an impressive rebound from their March lows, up at least 25% since through Thursday.
In one bright spot, Americans' view of the economy improved in early May even as the novel coronavirus continued to spread. An index of consumer sentiment rose to 73.7 in the three weeks ending May 13, from 71.8 for the previous four weeks, according to a University of Michigan survey released Friday.
The drop in stocks came after Reuters reported the Trump administration had moved to block shipments of semiconductors to Huawei Technologies, signaling an escalation in tensions between the U.S. and China.
"Given how dependent U.S. markets have been on technology companies driving their gains, if there's anything that's going to wear on the tech space, this will concern the whole market," said Seema Shah, chief strategist at Principal Global Investors. Anti-China rhetoric from the Trump administration is likely to continue into election season, she said.
China's economic activity showed some signs of improvement in April as the world's second-largest economy began returning to work, though rising joblessness continued to weigh heavily on consumer spending. Retail sales fell 7.5% in April, according to data reported Friday, slightly worse than consensus forecasts. Urban unemployment rose. The bright spot lay in industrial production's recovery last month, as it rose 3.9% to beat expectations.
The Chinese data shows that "you can send people back to work, but you can't make it mandatory for people to go out and buy stuff. The consumer psyche has been dented," said Peter Schaffrik, a global macro strategist at RBC Capital Markets. "It will be much more cautious and more difficult to reopen metropolitan areas that drive a good part of GDP such as Paris and London."
Overall output levels haven't returned to normal yet, a Chinese official said, warning that a combination of global recession and domestic joblessness would pose "unprecedented" challenges for the economy. The continued headwinds could strengthen Beijing's resolve to forge ahead with more stimulus measures at the country's main legislative meeting, set to begin May 22.
The Shanghai Composite Index ended the day largely flat, while the Hong Kong benchmark ticked down 0.1%.
"What we saw today tells us the economic recovery [in China] may take longer than expected," said Ken Wong, equity portfolio specialist at Eastspring Investments. "The market has not fully priced in what may happen with a much deeper trade war as tension rises between the world's two superpowers."
Brent crude, the global oil benchmark, climbed for the second day, advancing 4.6% to $32.57 a barrel. Prices have been buoyed by improving demand figures out of China and the gradual easing of coronavirus lockdowns in parts of Europe and the U.S.
Write to Anna Hirtenstein at firstname.lastname@example.org, Xie Yu at Yu.Xie@wsj.com and Gunjan Banerji at Gunjan.Banerji@wsj.com