Weekly Market Outlook - The Market's Moving Higher Because Stocks Are Rising

Another week, another winner, with the bulls seemingly picking up the pace. The S&P 500 logged more record highs, advancing just a little less than 2.0% for the five-day stretch.

The raw momentum is enticing, but this remains a dangerous situation. The market is overbought and ripe for a pullback, and only moving higher because investors are fearful they may miss out on more gains. Yes, it's enough for now. The question is, what might disrupt the rally long enough to give the would-be sellers an opening to get that ball rolling?

We'll look at the matter in detail below, after a rundown of last week's big economic news and a preview of this week's announcements.

Economic Data Analysis

A busy week indeed, starting with a look at the inflation picture. It's still tame, and even more so than expected. On a core basis, prices grew a mere 0.1% from November to December, translating into an annualized inflation rate 2.3%. It's been on the rise for months, but that rise still leaves inflation within the Fed's targeted range.

Consumer, Producer Inflation Charts

Source: Thomson Reuters Eikon

We also got December's retail sales figures late last week.... very impressive. The 0.7% improvement on November's tally meant a 5.8% year-over-year increase. That surge in spending came as a pleasant surprise after a couple of tepid months, but it also calls into question the year-ago data gathering. You'll recall retail spending reportedly crashed in December of 2018, leading some onlookers to conclude the economy was slowing to a grinding halt. There's been nothing to say the same since then. Last month's retail consumption surge may be exaggerated, but is still strong on an absolute basis.

Retail Sales Growth Charts

Source: Thomson Reuters Eikon

Bad news on the industrial side of the table though... industrial production fell 0.3% from November's activity, and capacity utilization fell from 77.2% to 77.0%. One slow month isn't devastating, but things have been poor for a few months now. We're not losing ground, but we're also not gaining the ground that a continually rising market says we should be. We need more manufacturing activity -- not just service activity.

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Adam Reynolds 1 month ago Member's comment

yeah, no kidding