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Outlooks and Economic Data Weigh On Equities

|Includes:GYMB, HOTT, Macy's Inc. (M), PLCE, PSUN, WMT

The price of crude oil is trading down today by about $2.00 at $77.43. The latest move in black gold comes in the wake of the dollar staging a recovery (amazing action in the dollar since Bernanke's show of force earlier in the week) in the session after being in a secular decline for some time. The fact that the dollar is rising against a basket of other international currencies has put the entire commodity complex in a tailspin today. The dollar has an inverse relationship with oil and other commodities. Gold has fallen from its record highs.

Exacerbating the move down is the release of data which suggests that the economic recovery in the U.S. is far from robust (see LEI details below). This prompted market participants to lock in profits as much of the rally in equities to this point have been predicated on the fact that the broader economy was on the mend. Although in many respects the economy is still recovering, there is a growing sentiment that the pace of the rebound will not marry well with generally rising financial estimates for corporate America.

Oil traders and investors have been taking their cue from the equity markets in recent sessions so it comes as no surprise that the movement in the commodity would parallel that of stocks. The action today also underscores the sentiment that the market appears to prefer a weaker dollar as this would more easily facilitate a sustained recovery. Now that the dollar appears to be showing signs of stabilization, the stock market has taken notice.

Economic Data

Philly Fed

The Philadelphia Fed index out this morning was mostly positive in every way, but unfortunately it just didn't have the weight to put a dent in the sell-off. The index increased to a reading of 16.7 from 11.5 month to month for November, coming in above the 12.0 consensus estimate. The highlights of the report were the new orders index, which increased to 14.8 from 6.2 and shipments which increased to a reading of 15.7 from 3.3. Prices paid also came down, indicating some margin relief for manufacturers.

Leading Economic Indicators

The market didn't appear too overjoyed with the leading economic indicators report. Even though we received somewhat positive reads on initial claims and the Philly Fed today, the market turned its attention to the slightly below consensus headline LEI print. The overall index advanced 0.3% in October as opposed to the consensus of a 0.4% rate of growth. However, LEI have now risen for seven consecutive months, continuing to confirm we have moved beyond the trough in the economic cycle.

Retail Sector Drubbing

By: Brian Sozzi, Research Analyst

The phones are ringing off the hook today inquiring about the rout in retail stocks. The reason is straightforward; outlooks for the holiday quarter have either been in line or below (rising) consensus estimates. Last week, the earnings reports from Macy's (NYSE:M) and Wal-Mart (NYSE:WMT) sounded an initial alarm bell, though I wouldn't be surprised if each of those company's beat guidance for 4Q as a result of strong cost controls. This week, however, specialty apparel companies have been the second wave of retail sector earnings.

By and large, the outlooks have looked underwhelming as warmer than expected weather is creating further angst to an already unknown environment for the holidays. Gymboree (NASDAQ:GYMB), Hot Topic (NASDAQ:HOTT), Pacific Sunwear (NASDAQ:PSUN), and Children's Place (NASDAQ:PLCE) to name a few have served up lukewarm guidance relative to ever bullish nature of the sell-side crowd. Considering most stocks in the specialty retail sector have been bid up through the roof, it's natural to see a pullback on the slightest bit of unhappy news flow.