MarketView for July 16

Summary

Well, Monday made it seven down days out of the past eight most recent trading days that the major equity indexes turned in red ink, much to the dismay of many on the Street many of whom were hoping for an extended rally to be tacked on to the numbers put up on the board this past Friday. A key reason for the disappointment was a surprise decline in June retail sales. This was the latest worrisome piece of economic data. The drop in retail sales in June, the third consecutive monthly decline, contrasted with economists' expectations for a small increase and was the latest sign the recovery is flagging.

Yet, surprisingly Citigroup's earnings limited losses. Citigroup's earnings, which exceeded estimates, followed JPMorgan Chase's forecast-beating earnings on Friday, which sparked a rally and broke a six-day streak of losses by the Dow industrials. Shares of Citigroup gained around 0.6 percent to $26.81. Although the third largest U.S. bank by assets reported stronger-than-expected earnings, its profit declined by 12 percent due to losses from credit crisis-era assets.

The S&P 500 index has fallen in seven of the past eight sessions, pressured by concerns about economic growth. Still, in a sign of resilience, the index is up roughly 7 percent from a low hit early in June despite the worsening economic data. At the same time, trading volume was the second lightest day this year.

Many companies have warned on profits in recent weeks. Negative to positive earnings guidance for the second quarter is 3.3 to 1, the worst since 2008, Thomson Reuters data showed. The IMF shaved its 2013 forecast for global growth to 3.9 percent from the 4.1 percent it projected in April, trimming projections for most advanced and emerging economies. It left its 2012 forecast unchanged at 3.5 percent.

The World Trade Organization ruled in favor of the United States, finding that China discriminates against foreign bank cards. The decision could help U.S. credit card companies like Visa, Mastercard and American Express.

In another credit card development, Visa, MasterCard and the banking industry reached a $7.25 billion settlement with U.S. retailers in a lawsuit late on Friday. Visa rose 2.5 percent to $127.15 and MasterCard shares gained 1.7 percent to $436.89. American Express shares rose 1.2 percent to $58.64.

In mergers and acquisitions news, GlaxoSmithKline is to acquire its long-time partner Human Genome Sciences for $3 billion, ending a three-month hostile pursuit of the biotech company on friendly terms after sweetening its offer. Shares of Human Genome rose 4.5 percent to $14.19. Meanwhile, the private equity firm TPG said it agreed to acquire Par Pharmaceutical for $1.9 billion, sending Par shares up 36.7 percent to $50.

Retail Sales Fall

Retail sales fell in June for the third straight month, the longest run of consecutive drops since 2008 when the country was mired in recession. According to the Commerce Department, sales slipped 0.5 percent, with declines across a wide swath of industries from electronics and cars to building supplies. The retail data is worrisome because it suggests consumer spending, which drives about two-thirds of the economy, is also sagging.

The report adds to a downward spiral of soft economic data that is raising pressure on President Barack Obama ahead of his November re-election bid. Republican challenger Mitt Romney is focusing his campaign on the weak economy, which has plagued Obama's presidency.

The dollar declined against the euro and the yield on 10-year U.S. government bonds dropped to an all-time low as the data stoked worries the economy was floundering and would possible require additional assistance from the Fed. Fed Chairman Ben Bernanke will testify to lawmakers on Tuesday and Wednesday on the Fed's view of the economy.

Job creation in the United States has slowed dramatically in the last few months as employers worry about a sagging global economy hurt by Europe's snowballing debt crisis. Bernanke's peers at central banks in China, the euro zone and Britain have eased monetary policy this summer to prop up their economies.

The International Monetary Fund slashed its forecast for global economic growth on Monday and urged European policymakers to take bolder action to stem their crisis. It also warned that China's economy risks a hard landing.

Our factory sector also has shown signs of contraction due to the global slowdown, although on Monday a survey showed New York state manufacturers perked up in July. Still, new orders shrank at the state's factories.

Separately, a poll showed on Monday that American companies are scaling back plans to hire workers with a rising share of firms saying the European debt crisis is taking a bite out of their sales. Forty-seven percent of companies surveyed felt their sales have dropped due to Europe's woes. Among companies that produce goods rather than provide services, the impact was even greater.

In a separate report, the Commerce Department said business inventories rose in May as motor vehicle dealers restocked to meet demand. Demand, however, looked weak in June. The retail sales report showed receipts at motor vehicle and parts dealers dropped 0.6 percent last month. Sales at electronics and appliance stores declined 0.8 percent, and were down 1.8 percent at gasoline stations, reflecting a decline in gasoline prices.

Often, relief at the pump allows consumers to spend their money elsewhere. But that didn't seem to be the case in June. However, gasoline prices might not continue to decline. So far in July, prices for crude oil have risen.

Consumers also face the prospect of higher taxes and less government spending next year, a combination that could potentially push the economy into recession. Lawmakers are debating how to avoid this "fiscal cliff," which is built into current law. Democrats warned on Monday they are prepared to let all Bush-era tax cuts expire if Republicans insist on extending lower rates for top earners.