Weekly Market Outlook – Running Out Of Room To Rally

Against the odds, stocks logged a win last week -- a pretty good one, in fact. The S&P 500 closed 2.7% above its close from the prior Friday, while the Nasdaq Composite ended the five-day stretch with a 3.1% gain. Even the Dow plugged into the rally, with the blue chip index making a weekly gain of 1.9% to end Friday's action at a record high close of 33,800.6.

Still, there are some problems. All three indices left behind gaps thanks to Monday's strong open, which for two of the three means there are now two week's worth of gaps to backfill. The S&P 500 also bumped into a major technical ceiling, and suspiciously didn't move any higher. And, perhaps most concerning of all, the volume (and now the participation) in the rally leaves much to be desired.

Of course, we were having a similar discussion just a week ago, and it didn't stop the bulls then. We'll drill into the what and where below. First, let's look at last week's big economic announcements and see what's coming this week that could move the market. Spoiler alert: There's a lot that could upset the apple cart, beginning with Tuesday's consumer inflation report.

Economic Data Analysis

If last week's producer inflation figures are any indication, investors should be worried. The long and short of it is, the bill for all that cheap money that's been printed out over the course of the past year is proverbially coming due. Producer inflation reached an annualized pace of 4.2% last month, and while the core producer inflation figure of 3.1% is a little more palatable, both are as high as they've been in years.

Economists don't think consumers will have it quite as bad, but considering how wrong they were about producer inflation rates, the CPI outlook isn't one to blindly trust.

Inflation Rate (Annualized) Charts

Source: Department of Labor, TradeStation

In their defense, we're in a tricky time. The COVID-19 pandemic moved into the United States in late-February of last year, and by the end of March, it had completely wrecked any semblance of normalcy. The year-over-year comparison may be misleading. The problem is, producer and consumer inflation have been quietly trending upward for three months now. That's got nothing to do with the timing of the comparison.

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