Click here for the Weekly Wrap by Briefing.com.
BOTTOM LINE: Overall, last week's market performance was modestly negative. The advance/decline line fell, sector performance was mixed and volume was moderate. Small-caps and Cyclicals underperformed for the week as worries over slowing economic growth increased. The fact that the Bloomberg Crude Oil % Bulls is only 29.0 is a negative, as this not a level I would expect to see at a meaningful top. On the positive side, long-term interest rates fell as investors became less concerned about inflation, notwithstanding the media's and bears' attempts to suggest otherwise. The ECRI Future Inflation Gauge is still below levels seen in Feb. 2003. Moreover, the Weekly Growth Rate of the ECRI Future Inflation Gauge has been in a downtrend since Dec. of 2004. The CPI will likely rise 3.0% this year, below last year's 3.3% rate and right at the 40-year average. The PCE Core Index, the Fed's favorite measure of inflation, will only rise around 1.75% this year. All the talk of "run away inflation" is not commensurate with reality as is illustrated by this chart. In my opinion, the markets' recent poor performance is not a result of worries over inflation. However, investors are concerned that high energy prices, slowing global growth, a substantial increase in corporate lawsuits/investigations, lingering overcapacity from the 90s and a hawkish Fed will result in significantly lower US economic growth. Finally, measures of investor anxiety were higher on the week and are finally near levels associated with meaningful market bottoms.