Macro Bullets Clip Stocks

January 14, 2009 3:43PM

(bettertrades) - Major indices plummeted roughly 3% on Wednesday after a slew of downbeat macroeconomic data reaffirmed the obvious: Things are very bad and could get worse. Palpable fears in the retail space and abroad are fanning the flames of darker days ahead for the U.S. economy.

This morning, the Commerce Department reported total retail sales plunged 2.7% in December to a seasonally adjusted $343.2 billion. Ex-autos, retail sales dropped 3.1%. Both total and ex-auto sales declines were substantially larger than analysts had expected. Last week, the nation's leading retailers posted huge declines in same-store sales with consumers increasingly curbing discretionary spending.

In a separate report, business inventories declined by 0.7% in November as retailers rushed to reduce stocks and slash prices.

Not all the data was doom and gloom. The Mortgage Bankers Association's purchase applications index showed refinancing jumped as lower interest rates for 30-year fixed mortgages dropped. At the heart of the current recession lies the housing meltdown. Spiraling home prices, unsold inventory, and the securitization of mortgages unhinged the financial system, leading to the subsequent credit crisis and a tidal wave of system risk.

The Philly Fed and Empire State Manufacturing Survey are due out on Thursday, in addition to the weekly jobless claims. Declining manufacturing activity and increasing numbers of workers filing for unemployment benefits has been a major source of malaise for the economy.

On the bright side, dire macroeconomic data is helping crush oil and other commodities. Crude settled under $38/bbl on January 14th, helped in part by another bearish weekly Energy information Agency stockpile report. Gold lost its luster, shedding 1.18%, as did silver futures. Soft commodities like soybean oil (-2 ¼%), cocoa (-3.5%), and frozen concentrated orange juice (-1.92%) were chewed up as well.

Going forward, macroeconomic data will continue to serve as a source of pain for the market. Stocks are getting caught in the crossfire of malicious employment, housing, manufacturing, and consumer sentiment data. Unfortunately, we don't seem to be running out of ammunition any time soon.