Cyclicals continued to retreat Friday and the decline for the S&P 500 accelerated, notes Jon Markman of Pivotal Point. 

Strength for the biggest tech stocks since the middle of June masked a lot of underlying weakness. Now it is all being exposed. The benchmark closed at 4,327, a decline of 0.75%. That is slightly above the first support level at 4,317 yet fully 2% from critical support at 4,229.

Barring a dramatic swing early in the week into bank, industrial, and materials stocks, a decline to the lower support is definitely in the cards.

Again, I don’t feel that would be the end of the line for bullish investors. The big tech stocks are extended and need to consolidate.

Cyclical issues are deeply oversold as pros bet on an economic collapse that probably will not happen. Near-term weakness may be constructive longer-term, which in plain English means that after a relatively brief scare, the bullish overtones of this strong year for equities will prevail with a rejuvenated leadership.

Meanwhile, stocks clanked and caterwauled Friday, with the S&P 500 (SPX) extending an orderly retreat from Monday's record as an uptick in COVID-19 cases nationwide, a surprise drop in consumer sentiment, dampened buying interest on a slow summer session.

The early stages of an earnings season freighted with high expectations also encouraged caution amid flagging momentum following the recent gains.

The S&P 500 closed near lows but lost just 1% this week. The Dow slid 0.9% to 4,687 and the Nasdaq Composite dropped 0.8% to 14,427.

Breadth favored decliners, 5-2, and there were just 198 new highs vs. 145 new lows. Big caps on the new high list included Pepsico, Danaher, Moderna, Mondelez, Crown Castle, and Waste Management. That’s soda, medical supplies, cell towers, and cookies, a noble but modest vanguard.

Healthcare, utility, and consumer staples stocks fared best, while banks and energy producers slumped alongside industrials and semis. Looks like a transition to defensive sectors is real.

Leisure shares fell after officials at a White House briefing said US COVID caseloads are likely to continue increasing from relatively low levels in the coming weeks, especially in areas with a low vaccination rate against the illness. "This is becoming a pandemic of the unvaccinated," said Rochelle Walensky, director of the CDC. Norwegian Cruise Line (NCLH), Carnival (CCL), and Caesars Entertainment (CZR) all got thumbs-down, losing about 5% apiece.

The 10-year US Treasury yield was little changed at 1.30%.

June retail sales rose 0.6%, defying expectations for a 0.4% decline amid a shortage of autos, as consumers shifted their spending from big-ticket or increasingly expensive items like cars, furniture, and building materials to electronics and appliances (up 3.3% in June), clothing (2.6% higher), restaurants (up 2.3% from May) and department stores higher by 5.9%. Year-to-date retail sales were up 22.9% from the first half of 2020.

The University of Michigan consumer sentiment index fell to 80.8 in the preliminary July reading, however, below the final June number at 85.5 and trailing expectations for a rise to 86.5 among analysts surveyed by Bloomberg.

Moderna (MRNA) shares climbed more than 10% on news the COVID-19 vaccine maker will be included in the S&P 500 from July 21, replacing Alexion Pharmaceuticals (ALXN), which is being acquired by AstraZeneca (AZN). Cintas (CTAS) led current S&P 500 constituents with a 4.6% gain after reporting higher-than-expected fourth-quarter results driven by improved demand for workplace uniforms. Dow Chemical (DOW) dragged the blue chips lower, dropping 3% after a downgrade to underperform from neutral by Bank of America Securities, which also lowered its ratings on several other chemicals stocks, warning that "expectations are high across the Street, while top-line growth and commodity margins may be at peak levels."

Learn more about Jon Markman at Pivotal Point.