Weekly Market Outlook – Just As Scripted, Stocks End The Year On A Bullish Foot

Given the timbre of most of last year, it can't be surprising that the market finished 2020 on a high note. Traders took a brief break from their buying early in the week, but when forced to make decisions, most people decided they'd rather start the new year with existing positions instead of waiting to add them as we moved into 2021. This, of course, only ups the odds of the usually strong start to the new year.

None of this dynamic changes the fact, however, that the market is overbought and ripe for profit-taking. When that might happen isn't clear. It may not happen for another month. We'll take a detailed look at the unlikely rally and its future below. First, let's recap last week's economic announcements and preview what's coming this week.

Economic Data Analysis

The only item of interest from last week was the S&P Case-Shiller Home Price Index report. As could have been expected, home prices grew once again, reaching record highs. The Case-Shiller figure was up 7.9% year-over-year.

FHFA and Case-Shiller Home Price Charts

Source: Standard & Poor's, FHFA, TradeStation

Bear in mind that number was for October, which is obviously a little dated. It's not an ancient figure, though. Real estate trends tends to remain in place for a while, so the more recent economic and sentiment slowdown shouldn't bring a sudden reversal to the good real estate pricing news. On the other hand, October's unusually strong improvement only sets the stage for a notable slowdown in future home price growth.

Everything else is on the grid.

Economic Report Calendar

Source: Briefing.com

This week -- the first (and full) week of the new year -- things are back in full swing. The party starts in earnest on Tuesday, with last month's ISM Manufacturing Index update. On Wednesday we'll hear about December's ISM Services (non-manufacturing) Index.

Both are expected to fall a bit from November's levels, though both should remain above the critical 50 level. On the flipside, that would be the second straight month of declines for both indices. It's just more evidence of a headwind now that the approaching post-COVID-19 reality is starting to set in.

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