Long-Term Uptrend Remains Intact – Weekly Market Outlook

While Friday wasn’t a particularly great day for stocks, the week itself was a winner on the heels a Goldilocks assessment from Janet Yellen and her cohorts at the Federal Reserve.  While the economy isn’t yet strong enough to end the bond-buying program cold turkey, it’s also not weak enough that the Fed doesn’t see the end of low interest rates somewhere on the horizon.  The “just right” situation of not-too-hot and not-too-cold means Yellen is going to be proactively stimulative…. which has been the lifeblood for stocks for a long while now, and will continue to be for at least several more months.

On the other hand, while the long-term, economic-based undertow may be bullish, a couple of short-term red flags began waving again on Friday; a small pullback still may be in the cards. 

We’ll weigh the odds after running down last week’s key economic numbers (and previewing this week’s).

Economic Data

First and foremost, though there’s no chart of it, the Federal Reserve essentially said it plans to maintain the status quo in terms of quantitative easing.  That is, Janet Yellen and the rest of the Fed’s governors see enough economic growth in place to continue tapering its bond-buyback program, but doesn’t see growth so strong there’ a need to raise the Fed’s foundational interest rate from 0.25%.  At the current pace, the bond-buying will end altogether in October, and though Yellen has been a little cryptic about the term “considerable time” when discussing how much longer it could be until she’s forced to raise rates, most experts believe it won’t happen until sometime between March and July (and some are even saying the dovish Yellen will wait until after July in 2015).

That wasn’t the only thing going on last week in terms of important economic data.  For instance, we heard August’s industrial production and capacity utilization figures on Monday of last week.  They weren’t great.  They weren’t bad, mind you, and it’s too soon to ring the alarm bells.  But, industrial production fell 0.1% last month, and capacity utilization slumped from 79.1% to 78.8%.  One month does not make a trend, but new trends start with that first small step.