Weekly Market Outlook - Another Record High, But Not The Ideal One

In a sweeping reversal of the previous week's weakness, stocks marched to record highs last week on the heels of a 4.6% rally from the S&P 500. Is the advance now out of gas? Maybe.

There are new barriers the rally will have to contend with this week, however. Most of the indices are now once again bumping into technical resistance that was first established months ago, and the broad market is just plain overbought. The volatility indices are also back to recent absolute floors, suggesting traders have reached their peak potential optimism.

We'll dissect those details below. First, though, let's look at last week's economic reports and preview which economic announcements are on this week's dance card.

Economic Data Analysis

Last week's big news was of course the jobs report for January. The Department of Labor reported the creation of 49,000 (net) new jobs last month, slightly reversing December's revised loss of 227,000. But, that was still enough to drive the unemployment rate down from 6.7% to 6.3%. Don't get too excited just yet though. The calculated size of the population, as well as the size of the labor pool both, fell somewhat dramatically, exaggerating the benefit of relatively small progress. We are making progress on the jobs front, but not as much as January's numbers might imply.

Unemployment Rate and Payroll Growth Charts

Source: Conference Board, University of Michigan, TradeStation

The only other big news from last week as the look at last month's ISM data... the services as well as the manufacturing index. Manufacturing fell a bit, from 60.5 to 58.7, while services edged up from 57.7 to 58.7. Both are still plenty strong though, well above the 50 level that divides growth and contraction.

ISM Index Charts

Source: Conference Board, University of Michigan, TradeStation

Everything else is on the grid.

Economic Report Calendar

Source: Briefing.com

This week is going to be easier to work through in terms of economic news to think about. In fact, we're only getting one item of interest, and only a little bit of it at that. On Wednesday look for last week's consumer inflation update. Economists aren't looking for much, but they are looking for some. Prices on core goods (ex-energy and ex-food) likely only increased 0.1% last month, although overall prices including food and energy probably grew 0.4% in January. As it stands right now, the overall annualized consumer inflation rate stands at 1.36%, which is completely palatable. Last month's expected price increases shouldn't change that annual pace much at all.

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