Well, forget the “fifth weekly gain” predicted earlier. Unless markets rebound before 4pm, the substantial losses this morning will be enough to smudge the 5-day portrait with a pretty shade of red.

In the first three hours of trading, all three indexes are down more than 1.5%. The Nasdaq has shed 1.87% to 1,971, while the S&P has dropped 1.63% to 996, and the Dow has fallen 1.58% to 9,249. For the week, the benchmark S&P is down 1.39%.

The drop in the markets wasn't totally unexpected as stocks seem to be running out of momentum lately, a quick look at the data makes it all understandable. 

An hour before the opening bell sounded, the Consumer Price Index showed a flat reading in the month, suggesting that there will be “slow, or no, growth in the economy,” as Malcolm Polley, Chief Investment Officer at Stewart Capital Advisors, said in a client note.

Prices have fallen 2.1% since last year, a deflationary symptom not seen in six decades. Plus, July marks the 5th straight month in deflationary territory, “the longest string since 1995,” as Jennifer Lee from BMO points out.

Core CPI, which excludes volatile food and energy components, edged up 0.1% in the month, following a 0.2% advance in June. Since last year, core prices have risen 1.5%, which sounds like a stark contrast to total CPI, but in fact that’s the smallest increase since 2003, and its half a point below the Fed’s ideal rate. So, both the headline and core items are treading softly.

At 9:15, the Industrial Production report posted a 0.5% increase, which is certainly good news at it marks the first gain since October. However, the advance was led by a 20% surge in the auto sector, meaning the gains were not broad-based.

Utility output fell 2.4%, electricity production was slashed 2.8%, and natural gas production was cut 0.6%.

“Given the troubles of the consumer . . . we are inclined to see this as little more than a rebound from the unsustainably steep fall in output after Lehman,” wrote Ian Shepherdson from HFE before the release. “We are happy to see it, and the success of the auto clunkers program will likely boost August and September too, but we are far from convinced that any real momentum is building.”

Perhaps the worse news of the day was the 10:00 Consumer Sentiment report, which defied expectations and sunk for the second straight month. The Reuters/U of Michigan survey slid nearly 3 points to 63.2 this month, subtracting further from a 4.8-point decline last month.

The main culprit appears to the labor market. With a 9.4% unemployment rate and broad expectations that it will climb to double-digits by the end of the year, it shouldn’t be a huge surprise that surveys measuring current conditions and six-month expectations each fell, driving the headline to its worst reading since March.

The day carries no more data or Treasury auctions, so unless fresh news hits the markets it seems unlikely for equities to end the week positively. Here’s to hoping.