MarketView for July 15

Summary

In part because of Citigroup's second quarter earnings report,  the S&P 500 index managed to chalk up an eighth straight day of higher numbers, making it the longest such streak since mid-January. The only resistance came from some weak retail sales numbers. As a result, both the Dow Jones Industrial Average and the S&P 500 indexes managed record closing highs for the third consecutive session. The Nasdaq managed its highest close since September 2000.

Stocks have been on a continuous upward trend this year, with the only exceptional period being the late-May selloff that was  triggered by Federal Reserve Chairman Ben Bernanke's comments, which in turn incorrectly raised the prospect of a relatively immediate trimming by the Fed of its $85 billion monthly stimulus program. As a result, the S&P 500 index has is up by18 percent since last December 31.

Shares of Citigroup ended the day up 2 percent to close at $51.81 after the third-largest bank by assets reported a 26 percent increase in adjusted quarterly earnings.

Leap Wireless saw its share price more than double after AT&T said late Friday it would buy the company for $1.19 billion. As a result, at least two brokerages raised their ratings on Leap. The shares ended the day up 112.41 percent to end the day at $16.95.

The day's economic data was mixed, however, with growth in New York state manufacturing for July accelerating, while June retail sales fell short of expectations. May business inventories barely increased.

Much of the focus this week will be on earnings. Analysts expect S&P 500 companies' second-quarter earnings to have grown 2.8 percent from a year earlier, with revenue up 1.5 percent from a year ago, Thomson Reuters data showed.

While earnings growth has slowed in recent quarters, it is expected to pick up the last half of the year. Bank of America-Merrill Lynch raised its year-end target for the S&P 500 to 1,750 from 1,600, citing expected earnings growth.

Most companies also are exceeding analysts' earnings expectations, as they have done in recent quarters. Of the companies that have reported second-quarter results so far, 66.7 percent are beating earnings estimates. Revenue results are faring worse.

S&P 500 industrial shares rose after airlines expressed confidence over the weekend in the safety of Boeing's 787 Dreamliner following a fire on one of the jets last week. Boeing gained 3.7 percent to end the day at $105.66, making it the Dow's top performer.

Utilities outperformed other sectors in the S&P 500, with the sector index up 1.6 percent. FirstEnergy and Public Service Enterprise were among the sector's best performers after power grid operators in the Northeast said they had enough electricity to keep air conditioners running this week through an anticipated heat wave.

First Solar was the S&P 500's best percentage gainer, rising 5.5 percent to close at $50.27. Shares of Tiffany rose 3.6 percent to end the day at $79.78 in active trading after Stifel Nicolaus upgraded the high-end jeweler's stock to a "buy" from a "hold" and set a price target of $92. At the same time, shares of Ingredion fell 9.9 percent to $62.57, a day after the company warned on earnings.

Volume was the lowest of any full trading day this year, with just 4.89 billion shares changing hands on the three major equity exchanges. This year the daily volume has averaged 6.4 billion shares.

Retail Sales Miss Expectations

According to a report released Monday morning by the Commerce Department, retail sales rose less than expected in June, adding to signs of a slowdown in economic growth that could argue against the Federal Reserve's plan to start trimming its monetary stimulus later this year. The Department indicated that retail sales increased 0.4 percent last month as demand for automobiles soared. However, sales of building materials fell.

Retail sales account for about 30 percent of consumer spending, rising 0.8 percent after a previously reported 0.6 percent gain in May, which was revised to a 0.5 percent increase. Higher gasoline prices also accounted for part of the increase in retail sales last month and the overall tone of the report was mixed.

So-called core sales, which strip out automobiles, gasoline and building materials and correspond most closely with the consumer spending component of gross domestic product, edged up 0.1 percent after rising 0.2 percent in May.

Last month, receipts at auto dealerships rose 1.8 percent after advancing 1.4 percent the prior month. Excluding autos, sales were flat after rising 0.3 percent the prior month.

Sales at building materials and garden equipment suppliers fell 2.2 percent, the weakest reading since May last year.

China Sees Slower Growth

China's GDP growth slowed in the second quarter to 7.5 percent year-on-year as weak overseas demand weighed on output and investment, lining up a test of Beijing's resolve to revamp the world's second-biggest economy in the face of deteriorating data. China's statistics bureau said the economy's performance in the first half of the year was stable overall and that indicators were within a reasonable range.

Other figures showed industrial output in June rising slightly less than forecast compared with a year earlier, but retail sales increasing more than had been expected.

The Australian dollar, which is highly sensitive to Chinese demand for Australian raw materials, rose on relief the GDP numbers were not weaker, following last week's report of a surprise fall in exports in June from a year earlier.

China’s new premier, Li Keqiang, has been prominent in pushing for economic reform over fast-line growth, suggesting the government is in no rush to offer fresh stimulus to revive an economy in a protracted slowdown. With the latest GDP data, China's growth has slowed down in nine of the last 10 quarters.

The government's official growth target for 2013 is 7.5 percent, impressive by world standards but it would be the slowest pace in 23 years for China. The latest data showed the economy grew 7.6 percent in the first half of the year from a year earlier, just ahead of the full-year target.

Last week, customs data showed China's exports fell 3.1 percent in June against forecasts for a rise of 4 percent, while imports dipped 0.7 percent versus an expected 8.0 percent rise. The customs administration added that the outlook for July to September was "grim. Other figures had shown factory-gate deflation persisted for a 16th straight month, backing the view that the economy, plagued by industrial overcapacity, is losing momentum.

Annual consumer inflation accelerated more than expected in June, but remained subdued at 2.7 percent, below Beijing's annual target of 3.5 percent.

The main worry for China's leaders is if the economic slowdown leads to high unemployment that could spark social unrest. So far government officials say employment is stable.

So for now, economists do not see any major stimulus or policy shift and instead expect the government to tough out the slowdown as they pursue a longer-term vision of reforming the economy towards consumer-led, rather than export- and investment-led growth.

Beijing is still cleaning up trillions of dollars in local government debt left over from its last spending spree during the 2008/2009 global financial crisis, while trying to rein in off-balance-sheet loans.