The stock market won the trifecta this week: The inflation worry passed, the price of oil fell, and the week rolled out a bevy of big M&A, private-equity and IPO deals.

The three major indices rallied in reaction and are now yielding double-digit returns for the year.

The

Dow Jones Industrial Average

gained 1.9% on the week, up 0.3% Friday, to 12,342.56 -- another all-time high. The

S&P 500

finished the week up 1.47% to close at 1401.20, its first close above 1400 since November 2000. The

Nasdaq Composite

ended Friday down 0.13%, but gained 2.4% for the week to 2445.86. Year to date, the Dow is up 15%, the S&P 500 has gained 12.25%, and the Nasdaq is up 10.9%, joining the double-digit club this week.

But, like a stretched rubber band, the longer the rally goes, the more anticipation builds for a snapback.

"As every day becomes a new closing high, we have to rationalize the place we've gotten to," says Art Hogan, chief market analyst at Jefferies & Co. "You look at the next week and you ask, 'What will keep us here?' "

But with very little data out next week, and given the market's tendency to go up and stay up, the market and its participants may just have their gluttonous appetites to guide them.

Speaking of gluttony, during the upcoming Thanksgiving-shortened week, market participants will shift their focus to the year-end holiday shopping season. Black Friday, the massive sale and shopping bonanza that comes the day after Thanksgiving, will provide some insight into whether U.S. consumers are buying more than just

Sony's

(SNE) - Get Report

PlayStation 3. The 400,000 video game units offered in the U.S. Friday sold out in minutes; Sony shares rose 2.1% Friday.

The initial public offering for commodities trading platform

Nymex Holdings

( NMX) resembled the Sony PlayStation mania.

The Nymex sold 6.5 million shares at $59, but started trading on the open market at more than double the offering price. The shares made it as high as $152 intraday before settling to close their first day at $132.99, up 125% from the offering price.

IPOs from solar energy company

First Solar

(FSLR) - Get Report

,

Halliburton

(HAL) - Get Report

spinoff

KBR

(KBR) - Get Report

and

Constellation Energy

(CEP)

all fared well this week.

Rental-care company

Hertz

(HTZ) - Get Report

, was the notable laggard. The company, which was the target of a leveraged buyout just last year, offered its shares below the expected range at $15 each, and they gained only two cents on their first trading day. Hertz is currently trading at $15.66 per share.

M&A and private equity activity continued to reflect optimism about the economy this week.

Just as

HCA

(HCA) - Get Report

and

Freescale Semiconductor

(FSL)

successfully completed bond offerings to finance their jumbo leveraged buyouts, the next big deal rolled onto the calendar.

Clear Channel Communications

(CCU) - Get Report

announced it agreed to be taken private for $18.7 billion by a group of investors including Thomas H. Lee Partners and Bain Capital.

In the big M&A news of the week,

US Airways

(LCC)

proposed an unsolicited $8 billion merger with bankrupt

Delta Air Lines

( DALRQ) on Wednesday, spurring big moves across the airline sector. Airlines also benefited from a drop in crude prices, which settled Friday at a 17-month low of $55.81 per barrel, down 6.35% on the week. For the week, the Dow Transports rose 2.4%.

Crude's fall added to a benign economic environment for stocks. The

Fed

was certainly relieved to find the core producer price index and the core consumer price index came in below consensus expectations, while retail sales declined, but less than expected. The labor market remains tight, as initial jobless claims dropped, while industrial production and manufacturing found its footing -- as evidenced by healthy Philadelphia and N.Y. Empire business activity surveys.

The data helped overcome the sting of the minutes of the October FOMC meeting, which revealed "all meeting participants expressed concern about the outlook for inflation." The economic news also vindicated the Fed's decision in June to hold the fed funds rate steady in order to allow the economy to slow, bring down inflation, and to keep a close eye on the housing market.

St. Louis Fed President William Poole commented on the lower inflation report at an event in Washington, D.C., Thursday. "It's another little scrap of evidence in the right direction," he said, adding that he couldn't say that "this number means we're out of the woods on inflation."

The housing market provided a scrap of evidence in the

wrong

direction Friday, however. As the turn-key element for most economists' forecasts, including the Fed's, the depth of housing's recession and how much its troubles spill into the broader economy is central to the Fed's 'on pause' scenario.

Housing starts fell 14.6% in October to a six-year low, and building permits fell 5.2% in the month to a nine-month low. The data put October housing starts down 27.4% year over year. While many have pointed to stronger levels of mortgage applications and two months of rising new-home sales as signs of a bottoming in housing, Friday's data paint a gloomier picture.

"The rapid rate of decline introduced downside risk to residential investment this quarter and in early 2007, potentially delaying improvement in the housing trajectory and implying weaker GDP growth in this and the next quarter," writes Peter Kretzmer, senior economist at Bank of America.

The bond market reveals the housing slump's import. After selling off through most of the week, bond traders appeared to be capitulating to the notion that the economy is not headed for a consumer-led recession. But Friday's housing data caused an about-face as the bearish bunch took the deepest decline in housing starts in six years as signs of trouble.

The 30-year Treasury bond rallied 25/32 to yield 4.69% (bond prices move inversely to yields). The 10-year note gained 16/32 to yield 4.6% and the two-year added 5/32 to yield 4.76%.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

here

to send her an email.