Weekly Market Outlook – June 20, 2016
The bulls did everything they could to get the rally back on track last week after the early breakdown. But, it just wasn’t meant to be. Once the S&P 500 (SPX) (SPY)Â fell under the 50-day moving average line on Wednesday, the index — despite trying — just couldn’t climb back above it. When all was said and done, the market lost 1.18% of its value last week.
Still, stocks have a few rabbits they could pull out of a hat and move higher rather than losing any more ground. And, even if they do, there’s still a ton of support not too far below where the S&P 500 ended last week. We’ll look at those floors after looking at the more important economic news from last week and this week.
Economic Data
Last week was loaded with economic news. We can’t cover all of it, but we will hit the highlights in orders of appearance.
The first biggie came on Tuesday… May’s retail sales figures. They were solid, up 0.5% overall, and up 0.4% when taking automobiles out of the equation. Total consumer spending was up more than expected, thanks to cars. The only weak link on the retail sales front is gasoline stations (and we know why), but even there we’ve seen three straight months of rising sales.
Retail Sales Chart
Source: Thomson Reuters
Note that on a year-over-year basis, retail spending was up about 2.0% regardless of the stratification. There’s no way of saying a lack of consumerism is a pitfall for the economy right now.Â
On Wednesday and Thursday we heard May’s producer price inflation and consumer inflation numbers. On both fronts they were about as strong as anticipated, on a core as well as a non-core basis. On an annualized basis, overall consumer inflation stands at a rate of 1.0%, but on a core basis it’s right around the Fed’s target rate of 2.0% with a reading of 2.2%. Overall annualized producer inflation is stagnant — at 0.0% — and core producer inflation is a tame 1.2% on a year-over-year basis.
Inflation Chart
Source: Thomson Reuters
No matter how you slice it, inflation is under control, giving room to the Fed to wait on any rate hike. The only real justification for a rate hike based on the current inflation picture is the notion that it’s rising. Janet Yellen may feel like she needs to quell it before it does race to debilitating levels. With not much else about the economy getting overheated though, even this “containment” argument feels a little flimsy.Â
