Weak inflation data launched the market higher this week:

Dow +2.6%

Nasdaq +5.2%

Nasdaq 100 +6.0%

S&P 500 +2.8%

S&P Midcap 400 +3.6%

S&P Smallcap 600 +4.0%

The Israel-Hezbollah cease-fire and lower oil prices kicked off a morning rally in stocks on Monday. Alaska's Prudhoe Bay oil field, thought to be out of service for a while due to leaky pipes, looked set to produce more than expected. That, too, lifted the mood for stocks.

Then, everything reversed. The cease-fire looked wobbly as fighting continued in areas. That caused oil to pare its losses. As oil prices rose again, investors thought about the next day's PPI data and Wednesday's CPI data and decided to hold off on buying too much. With so much depending on those inflation numbers, and the numbers being so uncertain, a wait-and-see attitude prevailed. For the day, the Dow gained just 0.1% and the Nasdaq just 0.6%.

When the producer price index came in much lower than feared on Tuesday, out came the party streamers. The PPI increased only 0.1% in July against expectations of a 0.4% jump. The core rate fell 0.3% against expectations of a 0.2% gain. This is the first time since last October that the core PPI has posted a decline.

That's good news to stock investors because it means inflation pressures are lower than thought. Less inflation means less chance of another interest rate increase from the Fed. This sentiment stands in stark contrast to last week's assumption of more increases ahead, highlighting just how whimsical are the forecasts of economists and stock pundits alike. Prior to the data, the futures market gave a 42% chance of another rate hike. Following the release, it fell to just 30%.

The buying frenzy steered most investors toward technology as it's the year's most depressed sector so far. Agilent Technologies (A) gained 9%, Computer Associates (CA) gained 7%, Dell (DELL) gained 4%, and Yahoo (YHOO) gained 3%.

For the day the Dow gained 1.2% and the Nasdaq gained 2.2%.

Wednesday extended the mood with the second part of this week's one-two punch combo to knock out inflation. The core consumer price index increased only 0.2% in July against expectations of a 0.3% gain. The lower reading broke a four-month string of 0.3% gains, lending credibility to the Fed's soft-landing scenario. Indeed, futures gave only a 20% chance of another rate hike next month from the Fed.

Then, separate data showed that the housing market is definitely slowing down. July housing starts dropped 2.5% and building permits dropped 6.5%. The numbers are down 13% and 21% respectively from a year ago. That's further evidence that higher rates have already put the brakes on the economy. So, there's no need to push harder on the pedal by raising rates even further.

Something the market overlooked this week was that while the short-term news is good for rates, the long-term trend is still too hot for the Fed's liking. The year-over-year increase in the core CPI is 2.7%, far over the 2% ceiling of the Fed's target range. There's still August's data to consider as well when it's reported next month. While the knee-jerk reaction was that rate hikes are behind us, it's nowhere near as certain as this week's bash would have us believe.

Also, there's the issue of what a slowing economy means beyond the end of rate hikes. Stable interest rates are great, but they're only going to come when there's enough evidence to believe that the economy has slowed sufficiently. Some day, investors will notice that a slower economy lowers company earnings. That's not good for stocks.

That realization was nowhere in sight this week, though, and the market partied on. Another drop in oil prices provided further encouragement. Investors flocked to technology again, sending the PHLX Semiconductor Sector index up 4.3% and Hewlett-Packard (HPQ) to an intraday 52-week high.

Just before the confetti was swept up, the Dow closed Wednesday 0.9% higher and the Nasdaq 2.3% higher.

Given the celebratory mood of Tuesday and Wednesday, it came as little surprise when Thursday settled into an unexciting gurgle along the unchanged mark. Oil fell for the fourth day in a row; all the way down to $70, the lowest price since June. The Israel-Hezbollah cease-fire looked to be holding up. Those two factors lent a slightly positive bias, and the Dow finished the day up 0.1% while the Nasdaq came in with a 0.4% gain.

Friday was similar to Thursday. Oil rose 1.5%, which helped energy companies but had little impact on the broader market. Technology continued to lead the way higher, this time helped by a 4.4% gain by Microsoft (MSFT) on news that it would complete less than one-quarter of its $20 billion stock buyback plan this week. The rest will be shifted to later quarters. That's a nice ongoing source of support for the stock.

Shares of Altria (MO) rose 3.3% to an all-time high when a U.S. District Court judge imposed no financial penalties on the company for hiding the perils of smoking from an unsuspecting public.

The Dow finished Friday up 0.4% and the Nasdaq 0.3%.

Without a doubt, it was an impressive week for stocks. The key indices rose on all five days, the first time that's happened since March.

Nonetheless, what should have been received as mildly positive news was blown out of proportion, in my opinion. The market was oversold, due for a bounce, and seized on some good economic data to flex a little.

Don't lose perspective here. A mid-August rally is not unusual; nor is subsequent late-August weakness. Too, this was an options expiration week and followed the quick rally pattern seen during such weeks in June and July, both of which were followed by further weakness. I continue to urge caution and patience. The best time to buy prior to the year-end rally is probably yet to come.