Pretty Clear Breakout Amid Valuation Challenges – Weekly Market Outlook

It wasn’t necessarily a huge gain for the market last week, but it was an important one. Most indices tiptoed into new-high (record high) territory on Tuesday, and after stalling for a couple of days then made a bold thrust into record high territory again on Friday. All told, last week’s close of 2110.3 for the S&P 500 (SPX) (SPY) translated into a 0.6% gain for the holiday-shortened week. Though valuation challenges are going to make it tough for stocks to continue rallying, from the technical perspective this is a pretty clear breakout. Just keep a close eye on it.

We’ll examine all the technical details below, but first, let’s dissect last week’s and this week’s upcoming economic numbers.

Economic Data

There was a fair amount of economic news posted last week, but perhaps none as important or as watched as the minutes from the January FOMC meeting. In short, not only did the Fed not raise interest rates, but based on the language used and the discussion between FOMC members, it may take even longer than even first presumed to start ratcheting rates upward.

We also heard last month’s housing starts and building permits data. Though starts fell from a pace of 1.087 million to 1.065 million while permits fell from 1.06 million to 1.053 million, a January lull can be normal, and unexpected inclement weather may have been a factor. Either way, both sets of data still remain in longer-term uptrends.

Housing Starts and Building Permits Chart

Source: Thomson Reuters Eikon

Though it’s not quite is meaningful as the consumer inflation rate, January’s producer price inflation rate was once again a bit discouraging. On a month-to-month basis it fell 0.8% overall, and slipped 0.1% on a core basis. Perhaps more important, the annualized PPI rate has now barely slipped into negative territory… deflation. We won’t get January’s CPI data until later this week, but generally speaking, it mirrors the PPI data.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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