Weekly market outlook: Is the market melting up?

By Price Headley,

Shutterstock photo

The market may have made progress last week, but in so doing pushed itself back into an overbought condition.  Perhaps even more troubling is how all the indices are at or near key technical ceilings, right as the overbought situation developed.  Before anyone takes on anything new, a closer look at the potential risks are merited.

We'll take such a look below, but first, let's examine last week's major economic reports.

Economic Calendar

Though last week's economic data dance card was relatively full, as we noted a week ago, not a great deal of the information in the lineup was terribly important.  The only items of any real interest were Monday's capacity utilization and industrial production figures, Tuesday's housing starts and building permits, and Tuesday's consumer inflation rate.  So, let's limit our focus to those data nuggets to that data.

You might recall that April's industrial activity data showed a mild slump.... not a dramatic one, but a mild one.  Though both data sets were still in longer-term uptrends, all big trends start as small ones, and there was a chance April's stumble was the beginning of something more significant.  Well, good news - it wasn't.  In May, Industrial Production was up 0.6%, and Capacity Utilization ticked higher, from 78.9% to 79.1%.  One month doesn't make a trend, but the long-term uptrend was, and still is, pointed in an upward direction.  This is a good sign for the long-term market, though it won't stave off short-term pullback.

Industrial Productivity Index and Capacity Utilization Chart

Source:  Federal Reserve 

As for housing starts and building permits, both fell.  Starts fell from an annual pace of 1.071 million to 1.001 million, while new permits fell from 1.059 million 991K.  Were it the first time we've seen trouble from these numbers, it might be dismissible.  This isn't the first time we've seen trouble here, however.  Housing starts and building permits have been slowing - though still growing - since early 2013.

Real Estate Construction Trends Chart

Source:  Census Bureau

Finally, while inflation rates started to push higher in April to reach 1.96%, there was some holdout of hope that it might have just been a blip.  It wasn't.  For May, consumer inflation hit 2.13%... the highest reading since October of 2012.  While still not at stifling levels, one has to wonder if this is the beginning of "the big one" that was spurred by years and years of stimulus that should have sparked inflation but never did.  We'll have to wait and see, but this is a little alarming.

Inflation History Chart

Source:  Department of Labor

Everything else is on the table below:

Economic Calendar

Source:  Briefing.com

The coming week is going to round out May's real estate data.  We'll hear existing home sales on Monday, and new home prices on Tuesday (from two sources), along with new home sales on Tuesday.  The expected numbers are mixed, though nobody seems to expect dramatic changes either way.  As the chart below shows, sales have been fading for a while, though the home price picture remains mixed.

Real Estate Sales and Price Trends Chart

Source:  Standard & Poors, Census Bureau, and National Assn. of Realtors

It's also going to be a big week on the sentiment front.  We'll get the Conference Board's consumer confidence figure for June on Tuesday, and we'll get the final score for the Michigan Sentiment Index for June on Friday.  The pros say the Conference Board's score should edge a little higher, from 83 to 84. Meanwhile, forecasters are expecting the Michigan Sentiment Index to move from a final reading of 81.2 in May to a final score of 82.5 for June.  Both data sets were already in uptrends, and those uptrends should be extended this coming week.

Consumer Sentiment Trends Chart

Source:  Conference Board and Reuters

Finally, we're also going to hear the final read on Q1's GDP change. It's likely to be even worse than first expected.  The prior guess was for a 1.0% dip, but now the pros expect Q1s GDP to have declined 1.8%.

Continue reading page 2 of this article

This article was originally published on MarketIntelligeneCenter.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Economy , real estate , stocks
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