Coming Week: Shaky Ground

As questions regarding the strength of the economy mount, the coming week may provide some answers.

The bond market continues to say the economy is weak, as evidenced by the recent drop in the benchmark 10-year Treasury yield to an 11-month low. On the other hand, the stock market, which is traditionally a leading indicator, is barely off its highs.

The major indices did move lower last week as economic worries began to take hold. The Dow fell 86 points, or 0.7%, its second losing week in a row. The S&P 500 gave back 4 points, or 0.3%, for the week, while the Nasdaq dropped 47 points, or 1.9%.

Meanwhile, the dollar is declining against the euro, theoretically because interest rates are "too low" in the U.S. However, Fed officials are maintaining a hawkish tone and insist that inflation remains a concern, probably because stocks and commodities prices are still high.

"How does the dilemma resolve?," asks Phil Roth, chief technical market analyst at Miller Tabak. "A big hit in bonds would be one resolution. But that becomes increasingly unlikely if stocks are struggling. The other is a quick smash in stocks, which would allow the Fed to talk dovish again."

Roth says the next few days may tell the tale. The market will get some more key pieces to the economic puzzle in the coming week, culminating in the November jobs report on Friday.

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