Weekly Market Outlook – The January Effect Is In Full Swing

Despite a rather bearish first trading day of the new year, stocks logged a great first full week. By the time Friday's closing bell rang, the S&P 500 had rallied 1.8% from 2020's close, reaching record highs (again) to end the week in question. Fresh certainty regarding the country's 2020 election and subsequent runoff races was celebrated, regardless of any company-specific or COVID-19 news.

The bullish start to the year implies we'll at least finish the month on a bullish foot; the so-called January Effect. That, of course, will only exacerbate the market's already-overbought condition. But, perhaps it won't matter; it hasn't mattered yet. As the old adage goes, don't fight the tape.

If you're a believer in the idea that all things eventually return to the mean though, every step forward makes this rally even more concerning. We'll look at everything in some detail below, as always. First, however, let's run down last week's big economic announcements and preview what's in store this upcoming week.

Economic Data Analysis

There were only two data sets released last week that were of real interest, but they were both biggies.

One of them was a look at last week's supply management numbers. The Institute of Supply Management's manufacturing index jumped from 57.5 to 60.7 rather than falling back to the expected 56.4, while the services index improved to 57.2 from November's reading of 55.9. The pros were calling for a figure of 54.7. That's the highest manufacturing reading we've seen since 2018, suggesting America's factories and production plants are incredibly busy.

The services measure only matched its readings seen around the middle of last year when things were easing back to normal. Even so, it's still well above the critical 50 level that delineates economic growth and economic contractions.

ISM Manufacturing and Services Index Charts

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