Weekly Market Outlook – January 17th, 2016

Despite a couple of valiant efforts from the bulls, there was just nothing that could stop the raging bear last week. By the time the closing bell rang on Friday, the market was off by 2.2% for the week…. most of which came during Friday’s selloff.

Was that enough to finally drive the market to a meaningful bottom and let stocks start to recover for a while? Most indices are still on the fence, but yes, there are some clues suggesting stocks are ready to pivot. The question is, can we trust those clues?

We’ll weigh the risks and rewards below, after a quick look at last week’s and this week’s economic news.

Economic Data

Last week was plenty busy in terms of economic data, but none of the major numbers came until Friday. That’s when we got December’s retail sales data, last month’s producer price inflation data, and December’s industrial production and capacity utilization data. None of it was very encouraging.

If anything is to get the blame for Friday’s bearish end to an already-rough week, it would be last month’s retail sales data. The pros were expecting a 0.1% improvement overall, and a 0.3% increase when taking auto sales out of the equation. Instead we got a 0.1% decline on both fronts.Even so, it’s worth noting that the census bureau’s numbers are a bit squirrelly. Had it not been for rock-bottom low gasoline prices, retail sales across the board would have been up with or without the seasonal adjustment. The raw data on our chart below paints a more meaningful picture.

Retail Sales Chart

Source: Thomson Reuters

No need for a Producer Price Inflation chart – just know they were mostly in line with estimates. That is, overall producer inflation was down -0.2%, but taking food and energy out of the equation, they grew 0.1%. On an annualized basis, overall producer inflation stands at a rare of -1.1%, though on a core basis it’s still only growing at an annualized pace of 0.3%. If this week’s consumer inflation follows suit, there won’t be a great deal of pressure on the Fed to pump interest rates up again.