Weekly Market Outlook – The Selling Has Taken On A Life Of Its Own

 

The market almost found a way to kickstart a recovery... almost. Though up for the week as of Thursday thanks to Monday's pivotal bar, the bulls changed their mind on Friday. Too scared to remain exposed to stocks headed into the weekend, that 1.9% setback left the S&P 500 down to the tune of 1.25% for the week. The close of 2599.95 was the lowest close since March.

It may well portend of things to come. Yet, a careful and closer look at all the data doesn't indicate that the sellers truly fear what lies ahead. Mostly it looks like traders afraid of more selling, which ironically could be causing the very thing they fear.

Regardless, there's no extra credit for standing in front of a train or being a martyr just to make a point.

We'll dissect the meltdown below, which unfortunately is gaining momentum. Before we get to that analysis though, let's run down last week's economic news and preview this week's economic announcements.

Economic Data Analysis

It wasn't an overwhelming week in terms of economic news, but it was certainly a busy one. More important, the reports we got all suggest the economy is in a Goldilocks zone... not too hot, not too cold. It's good enough to facilitate earnings growth, but not so strong that the Fed has to be hawkish with its rate-hike plans.

First and foremost, know that inflation is tempered. Tuesday's producer inflation data as well as Wednesday's consumer inflation for November were both as tepid as expected. 'The' annualized inflation rate now stands at 2.2%, essentially in line with the Fed's target.

Producer, Consumer Inflation (Annualized) Charts

Source: Thomson Reuters

This leaves the FOMC plenty of room to maneuver, though most investors seem to think the economy may be beyond help.

Consumers are also still spending in stores. Though spending slowed dramatically from October's 1.0% growth, the 0.2% rise was right on target. Year-over-year we're still seeing spending growth of more than 4.0%, in all stratifications.

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