Weekly Market Outlook – The Bears Are Testing The Waters (For Good Reason)

We warned you a week ago that the weight of the recent gains was starting to wear down the buying and buyers. We saw the impact of that reality last week, in the form of a 1.5% pullback from the S&P 500. It's possible that's all the break and breather the rally needed. Realistically speaking though, given how overbought stocks are, last week's lull may be a glimpse of more profit-taking to come.

That's not necessarily an omen of a new bear market. There's room for more selling that won't break the bigger-picture bullishness. There's a ton of technical support for miles below where the indices currently rest. Still, there's enough room for a "reset" that it could rattle bullish positions that had seemed relatively well-defended.

We'll take a detailed look at the budding breakdown below. First, let's recap last week's big economic news and preview what's in the cards for this week.

Economic Data Analysis

Last week was a big one in terms of economic news, as measured by the amount of data, but more importantly, as measured by the importance of the data.

Inflation data was part of the mix, and it was mostly encouraging. We expected a little of it, and we only got a little of it. It's healthy, but not overwhelming --particularly considering the amount of cheap money that's currently in circulation.

The annualized consumer inflation rate now stands at 1.4%, or 1.6% when not counting food and energy costs. Both are below the Fed's target level of 2.0%. Producers (factories, assembly plants, etc.) are also seeing tame inflation.

Consumer, Producer Inflation Charts

Source: Bureau of Labor Statistics, TradeStation

Of course, inflation may be tame largely because consumer demand is decidedly down.

Keep things in perspective. We're in an unprecedented time, and November's retail spending was oddly high. Moreover, economist were largely expected December's retail consumption to be lower, partly because of the logistical hurdles of making purchases, and partly because the pandemic has claimed jobs.

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