Weekly Market Outlook – Almost The Rally We Were Hoping To See

 

All in all, the bulls don't have too much to complain about. The rally slowed down as the week wore on, but most rallies would which they reached the 10% mark. If nothing else, the buyers need to take a breather.

The question is, how long (and how big) does that breather need to be? If not very big, stocks are setting up for a nice January. A small stumble could easily turn into a sizable setback, however, given the still-nervous mindsets of many traders.

We'll pinpoint what's still not-quite-right about the market below, but first, let's run-down last week's economic news. As it turns out, the inflation beast may have been fully tamed.

Economic Data Analysis

Last week was a relatively modest one in terms of the number of economic data nuggets we got, but a couple of them were hard-hitting numbers.

The party didn't start with one of the biggies, but Monday's look as the ISM Services Index does round out the ISM Manufacturing report we got last week for December. As expected, the non-manufacturing version of the index fell, but more than expected, from 60.7 to 57.6. Both reports fell quite a bit last month, raising red flags.

ISM Index Charts

Source: Thomson Reuters

Bear in mind that the ISM Indices are rooted in perception polls rather than raw data reports. It's entirely possible business managers could have expressed concern over headlines that looked grim, but don't actually matter all that much.

Also last week the minutes from the most recent meeting of the Federal Reserve's governors were released. Though no quantifiable measure comes out with that release, qualitatively speaking, most agreed the Fed didn't need to be in a particular hurry in terms of ratcheting interest rates higher.

That premise was underscored on Friday, when last month's consumer inflation report indicated the slowest price increases since the middle of 2007. The current annualized inflation rate stands at less than 2%, after months of declines, and on a core basis is holding steady just above 2.0%.

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