The S&P 500 Index ended last week at a new high, and the technical trend momentum picture is bullish.  But we’ve seen similar moves since February reverse several times, as the market has remained in a choppy and grinding narrowing range (with a mild upside bias). 

The $64,000 question: Do we trust the move we just got by taking it at face value, or is this another potential fakeout? We’ll weigh the odds below, after taking a detailed look at some of last week’s and this week’s economic numbers.  

Economic Data

While the economic dance-card was pretty full last week, not much of the data has hard-hitting. The portion of it that was heavy-duty stuff, though, wasn’t encouraging.

For instance, the pros were looking for a little measurable progress on the retail sales front. Overall retail sales were flat in April, versus expectations of a 0.2% improvement. Retail sales without automobiles were only up 0.1%, compared to an expected 0.2% increase. And no, we can’t blame lower oil/gasoline prices for the weakness. Consumers are (still) basically keeping their purse strings drawn fairly tightly; May’s surge was an exception to the recent norm. 

Retail Sales Chart

Source:  Thomson Reuters Eikon

Last week’s surprisingly low producer price inflation rate casts a shadow of doubt on this week’s upcoming consumer inflation data. Producers saw a 0.4% decline in their overall input costs, versus a forecast for a 0.2% uptick. Core producer inflation (without food and energy) fell 0.2%, versus an expected 0.2% rise. On an annualized basis, we’re now seeing deflation for producers. Though the lull in oil prices is the reason for the swing to a deflationary environment, even without the slump in volatile food and energy prices, prices/costs are very weak, suggesting a lack of pricing power. 

Producer Price Inflation Chart

Source:  Thomson Reuters Eikon

If last month’s producer inflation data is any indication of what’s in store for this Friday’s consumer inflation report, then the Fed need not be in any hurry to raise rates – inflation isn’t anywhere near running rampant.