Stocks Slide as Economic Worries Return


NEW YORK (TheStreet) -- U.S. stocks slumped Monday after domestic retail sales posted a surprise decline, falling for a third consecutive month.

Fresh concerns about the global economy were also stoked by the International Monetary Fund's reduction of its 2013 global growth forecast amid the protracted European debt crisis and by Chinese Premier Wen Jiabao's warning that momentum isn't yet in place for steady growth in China.

The Dow Jones Industrial Average fell 50 points, or 0.39%, to close at 12,727.

Within the Dow, 23 of the index's 30 components settled lower. The biggest percentage decliners were Alcoa ( AA), Caterpillar ( CAT), Coca-Cola ( KO), Home Depot ( HD) and JPMorgan Chase ( JPM); all down more than 1%.

Dow winners included American Express ( AXP), Chevron ( CVX) and Pfizer ( PFE).

The S&P 500 was slid 3 points, or 0.23%, to finish at 1354. The Nasdaq lost nearly 12 points, or 0.4%, at 2897.

Friday's big rally helped both the Dow and S&P 500 finish in positive territory last week but it's worth noting that both indexes have now fallen in seven of the past eight sessions during the lull in corporate news before earnings season picks up.

The headlines will pick up from here with three Dow components reporting results on Tuesday -- Coca-Cola, Intel ( INTC) and Johnson & Johnson ( JNJ) -- and Federal Reserve Chairman Ben Bernanke climbing Capitol Hill to give his semi-annual testimony on monetary policy to Congress.

The big blow to sentiment on Monday was news that retail sales slipped 0.5% in June, falling short of the 0.2% increase that economists surveyed by Thomson Reuters were expecting. The decline followed a 0.2% dip in May.

The data "marks a meaningful down-shift in household spending momentum, after the buoyancy seen in the past two years," said Millan Mulraine, senior U.S. strategist, TD Securities. "The general tone of this report was disappointing and it suggests that consumers are beginning to retrench spending in a meaningful way."

Mulraine continued: "More importantly, with sales falling for the third consecutive month a trend of softening household spending is beginning to develop, and with confidence remaining weak and employment gains softening we expect personal expenditures to remain quite tepid, underscoring the softening economic outlook."

Goldman Sachs economists called the report was "a negative" for their tracking estimate of second quarter gross domestic product growth, which they reduced by two tenths to 1.1%.

Excluding the more volatile auto sales component, the Commerce Department said retail sales fell 0.4%, compared with the flat figure that economists were expecting, and after falling 0.4% the previous month.

In other data, the New York Federal Reserve reported a read of 7.39 for the July Empire State Manufacturing Survey, up from 2.29 previously, and better than the reading of 4 expected by the market. Still, the details of the report were mixed, with both the new orders and unfilled orders indices dipping; while the shipments and number of employees components improved.

Also, business inventories rose 0.3% in May, slightly higher than the consensus view for an increase of 0.2%. The data follows a 0.4% boost in April.

Apprehension about second-quarter earnings season was also a factor in Monday's malaise, despite fairly low expectations. According to Thomson Reuters data, the blended estimate for the quarter, which reflects reported results and analyst expectations, is for year-over-year growth of 5.5% from the S&P 500, down from 8.1% in the first quarter. Six percent of S&P 500 companies have reported so far.

"So far most companies have met or beat projections but they've done so with a story," said Brian Amidei, managing director and partner at HighTower Palm Desert. "Earnings are reconfirming that we are definitely seeing a slowdown. The markets are sluggish at best and the economy is sluggish at best. The biggest overhang in the market is this fiscal cliff and the net effect it will have on overall economy. That is a concern."

Citigroup ( C) on Monday posted second-quarter earnings of $2.95 billion, or 95 cents a share, on revenue of $18.64 billion. The average estimate of analysts polled by Thomson Reuters is for a profit of 89 cents a share on revenue of $18.76 billion.

Excluding one-time items, the bank earned $3.08 billion, or $1 per share, in the latest quarter.

Also, news surfaced over the weekend that Citigroup reportedly plans to seek permission to increase its dividend by the end of this year. The bank currently has a minimal penny per share quarterly payout following the financial crisis.

The stock rose 0.60%.

Shares of Par Pharmaceutical ( PRX) soared more than 36% Monday after the company agreed to be acquired by buyout firm TPG for $1.9 billion. The deal values Par shares at $50 each in cash, a premium of more than 35% to Friday's close at $36.58.

Under the terms of the deal, Par, a Woodcliffe, N.J.-based maker of both generic and proprietary drugs, now enters a go-shop period that allows it to solicit a superior proposal from third parties through Aug. 24.

If another offer doesn't materialize, the transaction is expected to close in 2012, subject to customary approvals and closing conditions.

Credit card companies MasterCard ( MA) and Visa ( V) announced their agreement late Friday to settle class action litigation with U.S. retailers. Visa said it's paying $4.4 billion, while MasterCard said its share of the cash portion of the settlement is $790 million.

Visa expects to record a $4.1 billion charge in the June-ended quarter in relation to the settlement.

Visa and MasterCard shares popped more than 2.4% and 1.6%, respectively.

The agreement settles claims by retailers that credit card companies conspired to fix the fees they charge retailers and opens the door for retailers to begin charging consumers extra to use credit cards. Visa shares gained nearly 3% in morning trades, while MasterCard's stock added 2%.

Dean Foods ( DF) shares lost more than 7% after the stock was downgraded to market perform from outperform by BMO Capital Markets.

Shares of Texas Instruments ( TXN) lost 2.2% after the chip maker was downgraded to underperform from market perform at FBR Capital Markets as part of a larger call on the semiconductor companies ahead of second-quarter reporting season.

The firm, which also dropped its 12-month price target to $24.50 from $30, said it sees "more downside risks" for Texas Instruments than other chip stocks "trading near trough valuations."

FBR also lowered price targets and earnings estimates on Atmel ( ATML), Linear Technology ( LLTC), Maxim Integrated Products ( MXIM), Nvidia ( NVDA) and ON Semiconductor ( ONNN).

August crude oil futures settled up $1.02 cents to $87.10 a barrel. August gold futures settled at $1591.60 an ounce, down 40 cents.

The benchmark 10-year Treasury rose 6/32, diluting the yield to 1.470%, while the dollar was down 0.23%, according to the dollar index.

The FTSE in London closed off 0.07% while the DAX in Germany edged up 0.13%. Hong Kong's Hang Seng Stock index finished 0.15% higher. The Japanese markets were closed for a national holiday.


-- Written by Andrea Tse and Joe Deaux in New York.

>To contact the writer of this article, click here: Andrea Tse.

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