Stocks toyed with the idea two weeks ago, but pulled the trigger last week. What's that? A significant stumble. After the bullish momentum slowed the first full week back after Thanksgiving, it reversed – in spades. The S&P 500's (SPY) (SPX) 3.5% pullback last week was actually the worst single calendar-week performance since August of 2011.
Ironically, the sheer size of the selloff may also be the best thing going for the market this week, as it may inspire a short-term bounce. The market also halted Friday's pullback at a spot where the bulls have a good chance at making a successful stand. The details are discussed below, following an inspection of last week's and this week's key economic numbers.
Economic Data
Economic data was relatively sparse last week. In fact, the only heavy-hitting information we got was November's retail sales growth. It was encouraging. Last month's overall retail consumption was up 0.7%, and even when taking automobiles out of the picture, November's retail sales were up 0.5%. Both figures were considerably better than expected. Perhaps more important at this time, as the plot of the broad retail spending trend below continues to suggest, the consumer is feeling just fine – spending remains healthy. [The month-to-month volatility is normal.]
Retail Spending Chart
Source: Thomson Reuters Eikon
It's not as important as the strength in retail spending for November, but it is likely to be an omen of what to expect when we hear this week's consumer inflation data.
On Friday, the Bureau of Labor Statistics reported another slide in producer costs. The Producer Price Index fell 0.2% overall, and was flat on a core (ex-food and energy) basis. The annualized PPI rate fell from October's 1.5% to 1.4%. Last month's consumer price index data will be announced on Wednesday, and should be similar tepid. The problem is, the annualized consumer inflation rate now stands at a rather low 1.66%. There's not much room for even-weaker inflation before structural problems surface for the economy.
