Weekly Recap

Here is a copy of Briefing.com's Weekly Wrap:

There was a limited amount of news this week. Not surprisingly, the S&P was fairly stable. The largest swing occurred on Friday with a 5 point drop. The net result for this holiday-shortened week was a small decline, which is reasonable given that the most important news was bearish.
The January core CPI was reported on Wednesday to have risen 0.3%. That was the largest gain since June. It was larger than the 0.1% increases in each of the prior three months, and larger than an expected 0.2% gain. It pushed the year-over-year increase in the core rate to 2.7%. That is well above the Fed's inflation forecast for 2007 of 2% to 2.25%. It wasn't good news.

The market showed good resilience to the report. The S&P only lost 2 points that day. The impact on underlying sentiment might also have contributed to the 1 point loss on Thursday and the 5 point loss on Friday, but the reaction could easily have been worse.

The other major event this week was that oil pushed above $60 a barrel and closed the week at $61.10. That isn't up much from $59.39 at the close of the prior week, but the push above $60 has raised concerns for the broader market. Interestingly, energy prices are now down over the past year. The year-over-year total CPI is up just 2.1%. That is less than the 2.7% gain in the core rate as noted above. Energy prices have held down overall inflation.

The major earnings reports this week were from retailers. Wal-Mart beat expectations, but the stock was slightly lower on the week. Home Depot reported below expectationsand JC Penney above, but both suffered similar fates as Wal-Mart. Home builder Toll Brothers and Hewlett-Packard also saw their stock prices decline after earnings reports. Earnings individually and collectively provided no support to the market.

There were no major economic releases other than the CPI report. New claims for unemployment for the week ended February 17 fell to 332,000 from 359,000 the week before, but that is still above the recent trend of 300,000 to 330,000. There is a possibility that this reflects some softening in the labor market.

The other major event was the release of the January 31 Fed policy committee meeting minutes on Wednesday. The minutes presented no surprises, but did reflect a somewhat tougher stance towards inflation than Fed Chairman Bernanke seemed to express the previous week. Nevertheless, the minutes were not considered consequential.

There was also a fair amount of attention given this past week to the fact that default rates in the sub-prime mortgage market have picked up, but it was hard to discern much impact in the overall stock market.

The market thus drifted lower this week amidst a small amount of bearish news. The S&P showed good resilience, and the Nasdaq even managed a gain. This may reflect an unwinding of the recent upward momentum, or just another pause on the run that has occurred since July. Since then, the market has not retreated as much as 2%. That has many analysts suggesting a correction or consolidation is long overdue, and just as many saying that the widespread pessimism associated with that belief is a bullish sign.

The week ahead brings a reasonable number of earnings reports, once again highlighted by retailers. The economic calendar is highlighted by the a likely downward revision to the originally reported 3.5% fourth quarter GDP number on Wednesday.