Huge week for economic news ahead

Good day! All three of the major indices crept once again to new 52-week highs on Friday, but it wasn't an easy session for the market. After a strong breakout rally on April 19th and 20th, the pace of the upside slowed as the Nasdaq came into prior highs and S&P 500 broke through to new ones on the year. This slowdown was particularly evident in Friday's session thanks to profit-taking ahead of the weekend. The index futures broke higher in the early morning hours, but the rally was a choppy one, leaving the indices without a strong directional bias intraday and few clear intraday setups. We did see some of that pre-weekend profit-taking in the afternoon, but the indices still managed to squeak by with a small gain by the closing bell.

Dow Jones Industrial Average (Figure 1)

Friday's economic data didn't have much of an impact on the day's price action. According to the Commerce Department, personal income rose 0.5% in March. It had risen 0.4% in February. Meanwhile, personal spending increased 0.6% in March, compared to an upwardly revised 0.9% in February. Overall the pace of economic growth slowed dramatically compared to the final quarter of 2010. The annual pace at that time was 3.1%. So far this year that pace has dropped to 1.8%. Personal consumption expenditures for the first quarter, which measure the price changes in consumer goods and services, rose 0.4% in March. Excluding food and energy (which nobody really needs anyway, right?), the increase was 0.1%.

Higher gasoline prices have certainly been hitting home these days, and those of us who are keen on purchasing fresh produce have seen those prices hit our pocketbooks as well. Back in January many of the headlines focused upon food prices, as well as gas prices as being two areas consumers could expect to see a crunch for the first half of this year and so far this has been the case. Although it may not feel like it, however, Americans have been relatively shielded so far by the worst, in part thanks to strong yields on cereal crops this past year. Countries such as India, on the other hand, have already experienced double digit inflation this year.

Fed chairman Ben Bernanke has been keen to downplay inflation fears in the U.S., stating this past week in his first-ever press conference that the U.S. central bank does not foresee sustainability in the recent increase in inflationary trends. The current view is for 2.1% to 2.8% in 2011, which was higher than previously anticipated. Meanwhile, the Fed cut its projections for growth in 2011 to between 3.1% to 3.3%. The first quarter gross domestic product data will be released on Thursday.

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