Weekly Market Outlook – You Had To Know It Was Going To Happen Sometime

The market's been playing with fire for weeks. It finally got burned. The S&P 500 tumbled 3.3% last week, marking the worst weeks for stocks since October. And yet, even with the setback, the rally's not broken. Dented and bent? Yes, but not broken. The sellers didn't drive the indices all the way under the very first of their technical support lines, so there's still plenty of opportunity for the market to rebound.

Will that happen? It's too soon to say. But, we're seeing some red flags we've not seen wave in a long time. We'll look at those warnings in some detail below. First, let's recap last week's big economic announcements and preview what's coming this week.

Economic Data Analysis

Not only was it a busy week, it was a good one -- at least in terms of economic reports.

Take home prices, for instance. Although both data sets are for the month of November, the Case-Shiller Home Price Index was up 9.1% year-over-year, while the FHFA Housing Price Index improved 1.0% between October and November (which is actually an annualized pace in excess of 9.0%).

Home Price Index Charts

Source: Standard & Poor's, FHFA, TradeStation

While it's possible this growth has slowed since this point in time, the housing market is still quite strong. How do we know? New home sales, for one. While the yearly pace of 842,000 didn't quite live up to the expected 860,000 for December, that's still up from November's clip of 829,000, and the second-best reading in years.

Also, bear in mind that sales of existing homes hit a multi-year high pace of 6.76 million last month (not shown below), showing steady forward progress from May's multi-year low.

New Home Sales Charts

Source: Census Bureau, TradeStation

Given these trends, it's not surprising that sentiment continued to improve last month -- or at least not stumble much. The Conference Board's consumer confidence figure rose from 87.1 to 89.3 in January, while the Michigan Sentiment Index fell from 79.2 to 79.0. Neither are anywhere near their pre-COVID-19 levels, but neither are still falling either. We're seeing subtle (even if inconsistent) progress on these fronts.

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