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Coming into last week’s shortened holiday week, market conditions were decidedly tilted toward adverse outcomes, as investor and consumer sentiment remains incredibly weak. But following three straight weeks of declines and back-to-back 5%+ weekly declines in the S&P 500 Index (which has only happened seven times since WWII), stocks found a way to rally higher last week.

Last week, we noted that good news is bad news for the markets. Suggesting economic data that comes in stronger than expected could pressure the Federal Reserve to tighten monetary policy more aggressively. Therefore, stock prices may react negatively to incoming evidence that shows economic activity is still running hot. But sometimes, bad news is just bad news. Last week’s consumer price inflation report is a glaring example that elevated prices for just about everything are an ongoing problem for the economy and markets. 

Stocks couldn’t carry their momentum forward last week after breaking a seven-week losing streak, as the S&P 500^® Index dropped 1.2%. The NASDAQ Composite fell roughly 1.0% during the shortened holiday week, and the Dow Jones Industrials Average lost 0.9%.