A third consecutive monthly fall in consumer spending dragged the benchmarks to their seventh decline out of eight trading days on the opening day of the week. Retail data was all the more troublesome as a third-consecutive fall brought back memories of the days of financial turmoil in 2008. Separately, the International Monetary Fund chopped the global economic outlook, intensifying concerns about global financial health. However, an encouraging earnings report from Citigroup erased some of the losses.
The Dow Jones Industrial Average (DJI) declined 0.4% to close at 12,727.21. The Standard & Poor 500 (S&P 500) slipped 0.2% and finished yesterday’s trading session at 1,353.64. The tech-laden Nasdaq Composite Index dropped 0.4% to move down to 2,896.94. The fear-gauge CBOE Volatility Index (VIX) edged up 2.2% and settled at 17.11. Preliminary data from Reuters showed that volumes were at the second lowest for the year with consolidated volumes on the New York Stock Exchange, Nasdaq and American Stock Exchange at roughly 5.06 billion shares. Advancers were outpaced by the decliners on the NYSE; as for 43% stocks that advanced, 53% stocks traded lower.
The day’s biggest headline affecting the markets was retail sales data released by the U.S. Department of Commerce. Unfortunately, the third-straight decline and lower-than-expected figures only affected the markets negatively. According to the U.S. Census Bureau, U.S. retail and food services sales declined 0.5% from the prior month to $401.5 billion in June. Consensus estimates had projected a 0.1% gain in retail sales. The losing streak continued into the third month, the first time ever since the recessionary in 2008.
Consequently, retail stocks were badly affected and the SPDR S&P Retail (XRT) dropped 0.6%. Among the retail stocks, J.C. Penney Company, Inc. (NYSE:JCP), The Bon-Ton Stores, Inc. (NASDAQ:BONT), Wal-Mart Stores, Inc. (NYSE:WMT), Dollar Tree, Inc. (NASDAQ:DLTR), Fred's, Inc. (NASDAQ:FRED) and Target Corporation (NYSE:TGT) declined 2.2%, 2.2%, 0.3%, 0.5%, 1.0% and 0.7%, respectively.
The U.S. Department of Commerce also reported data on business inventories and noted a 0.3% rise in manufacturers’ and trade inventories to an estimated end-of-month level of $1,578.4 billion. According to the report, “The total business inventories/sales ratio based on seasonally adjusted data at the end of May was 1.27. The May 2011 ratio was 1.27”.
Separately, the Federal Reserve Bank of New York released the monthly survey of manufacturers in New York State, wherein it was noted that ‘activity expanded modestly over the month’. The general business conditions index moved up to 7.4 in July from 2.3 in June. This was far ahead of consensus estimates of a reading of 3.9. However, new orders were reported to have dropped to -2.7, the first decline into the negative zone since November 2011.
Further, a downward revision of the economic outlook for 2013 by the International Monetary Fund (IMF) dampened the sentiment. The IMF slashed its 2013 economic growth estimate from 4.1% to 3.9%. The agency is not pleased with measures undertaken to fix the European debt crisis. IMF also said that if Europe fails to sufficiently address the debt crisis then the forecasted growth figures are ‘too optimistic’. The international lending agency said: “Clearly, downside risks continue to loom large, importantly reflecting risks of delayed or insufficient policy action”.
Amidst such apprehensions, investors are gearing up for a busy week on the earnings front. However, the week has started on a positive note, at least for the financial sector, after Citigroup Inc. (NYSE:C) came out with encouraging figures. Lower loan loss provisions, higher transaction services revenues and a drop in expenses enabled the third-largest U.S. bank to top the Street’s estimates. The company’s shares advanced 0.6% and the bank’s success follows JPMorgan Chase & Co.’s (NYSE:JPM) robust earnings results reported last Friday.