The Fed continues to be more concerned with growth in the economy than in inflation because of more bearish data hitting the markets. Although inflation is a concern with record grain, energy, and metals prices, jobs growth is the primary concern. Without jobs, consumers will have a much harder time surviving inflation. Many analysts and market participants expect to see a 50 basis point rate cut at the next Federal Open Market Committee (FOMC) meeting January 29th and 30th. At this point, it is rumored that the Fed might cut prior to the meeting at the end of the month. In my opinion, a Fed cut prior to January 30th would likely increase nervousness and concern in the market. Further selling rallies in the stock market have become the norm, which is indicative of a bearish market longer-term. It is also important to note that we continue to keep an eye on the inflation posture as a result of high energy and food costs. The trends in several commodity markets are clearly intact and pointing to higher prices longer-term.

According to the retail sales numbers that came out Tuesday morning, sales are continuing to drop. They came out -.4% versus +.1%. It's a concern since holiday shopping season is still being considered, due to gift cards. Gift cards are counted in the sales figures when they are used and not purchased. Since inflation is becoming more and more of a concern in every household, further declines in sales figures are expected longer-term. Another factor to consider, according to The Gartman Letter, is that unleaded gas is counted in the retail sales figures. As gasoline prices rise, the total sales and percentage of sales relative to the total sales increases for unleaded gas. Does this mean that true sales of goods are actually declining faster than the numbers lead us to believe?

Producer price index (PPI) came out -.1% versus +.2% as expected and +3.2% last month. Last month's numbers were reminiscent of early 1970s inflation. The decline in PPI certainly eased consumer concerns a slight bit after last month's huge jump. The decline is likely attributed to a slowing economy though. With PPI coming significantly higher last month, it is a matter of time in my opinion before these costs are passed on to the consumers. The increased costs are also likely to continue pressuring profitability.

The weaker trend for existing home sales and new home sales figures continues to prevail. The true test of the housing market will be this spring, which is typically the prime time to buy a home. The tighter lending practices are also decreasing the available pool of homeowners, which is increasing the available supply.

Non-farm payrolls came out lower than expected at the beginning of the month at +18,000 jobs vs. +70,000 expected. This quickly caused the stock market to fall rather quickly. As a refresher, the December unemployment report came out better than expected with an increase of 94,000 non-farm payrolls vs. +70,000 expected. The report was actually revised last month as well to +115,000. The market will continue to be concerned with further weakness. On the flipside, U.S. companies are considered to be some of the most efficient companies in the world. In today's environment, it is possible that companies have less fat to trim than they used to, which could stabilize the bearishness of the employment situation more quickly.

When discussing the stock market, my views have really not changed since the last eView. The stock market continues to be extremely volatile as a result of the financial tug of war. The hint of any sort of rate cut continues to be near-term supportive to stocks, because the market views an ease of lending practices to be bullish for growth. I have also heard several comments lately that foreign investors view the stock market as a long-term buying opportunity, primarily due to the weaker U.S. dollar allowing foreign investors the luxury of increased purchasing power. In my opinion, the rate cuts might provide temporary relief to the economy and most notably the stock market. However, it is questionable as to how it will affect the market's longer-term trend. Fed rate cuts are not indicative of a healthy economy. We are also uncertain if further credit crunch surprises exist.

Fed Watch: The market is expecting the Fed to lower the Fed funds rate by 50 basis points. It is believed that several more rate cuts are in store through a good part of the year.

Technical Update for March 10-Year Notes:
Near-Term Trend: Higher, but be cautious of possible waning momentum
Long-Term Trend: Higher
Support: 115-01.0; 112-17.0
Resistance: 117-07.0
The longer-term trend is still pointing higher. Be cautious with the FOMC meeting coming up. The market is expecting a 50 basis point rate cut, which is likely priced in already.