Just when it looked liked the market was going to stumble over the edge of the cliff, the bulls backed away from a meltdown… and then some.  After a nasty 3.5% pullback in the second full week of December, the bulls countered with last week's 3.4% bounceback, and tested new record highs in the process.

Do we trust last week's surprising strength as a renewal of the bigger-picture uptrend?  We could, but a couple of red flags are waving we may want to at least look at before jumping on the bandwagon.

We'll weight the market's pros and cons in a moment.  First let's paint the broad brush strokes using last week's and this week's key economic numbers.

Economic Data

We got a fair amount of economic information last week, not the least of which was the decision from the Federal Reserve to NOT change interest rates from their current uber-low levels.  It does appear, however, the Fed realizes it can no longer kick the interest-rate-hike can down the road any longer. 

The language describing how much longer the rate increase could be delayed was no longer the term “considerable time”, but rather, is now described as “patient.”  Most interpreted the switch as a sign of it happening sooner than later, as much of the language accompanying the Fed's statement saw the U.S. economy in a positive light despite what was unfurling in Russia and eastern Asia.

Most of last week's economic numbers jived with Janet Yellen's slightly optimistic viewpoint.

Take, for instance, the increases in our nation's capacity utilization and industrial productivity for November.  The former was up from 79.3% to 80.1%, and the latter was up 1.3%. Both are at multi-year high levels.  We've previously mentioned that there is a correlation between this particular economic indicator and broad stock market performance.

Capacity Utilization and Industrial Productivity Chart