EC Biggest 2 Week Gain Since 2009 – Weekly Market Outlook

Three weeks ago, the market was on the brink of turning a minor pullback into a major meltdown.  In the two weeks since then, the market has done something it hasn't done in years (since 2009, see further below in the article). What's that?  Log a 7% gain in just the span of two weeks.  The close at new record highs (for the S&P 500 (SPX) (SPY) and the DJIA (INDU) (DIA) anyway) is just a little bullish gravy.

There's such a thing as "too much" though,  and if there was ever  a case where stocks have traveled too far, too fast, the latter half of October most definitely qualifies.  That's not to stocks can't continue to rally from here.  If they do, though, the pace and length of the gain is going to graduate from "rarity" to "unheard of."  All well and good, but when you start needing the market to do things that are practically unheard of, it's time to get a little concerned.

We'll weigh the odds in a moment.  The first information we want to dissect is last week's and this week's major economic announcement.

Economic Data

There was certainly no shortage of economic information last week.  The hardest-hitting of all, though, had to be the release of the FOMC's policy meeting minutes and any subsequent change in interest rates.  There was no change in its base interest rate of 0.25%, of course, but a change was never expected on that front.  What mattered is the tone of the minutes, and the words the committee chose to describe the assessment of the economy as of October.

The two key phrases this time around were "considerable time" and "the likelihood of inflation running persistently below 2 percent has diminished somewhat."  The former refers to the FOMC's expectation regarding how much longer rates will remain low, while the latter explains…. well, it clearly indicates the Fed isn't concerned about the slow deterioration of inflation rates to sub-2.0% levels. 

Notably gone from October's meeting minutes was the term "significant underutilization" used to describe the Fed's opinion on the overall labor market in September.  Now those labor impasses are "gradually diminishing." 
 When all was said and done, Janet Yellen and her cohorts decided the best change to make was none, thus ending the bond-buyback program as planned, and holding interest rates steady at rock-bottom lows. 

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