Markets experienced significant volatility this week as the Federal Reserve held short-term interest rates steady and big tech earnings put AI (un)profitability in the spotlight. Volatility was not unique to stocks as gold and silver experienced significant intraday price changes and Bitcoin fell more than -7% throughout the week.
MACROECONOMIC UPDATE
- Consumer Confidence plummeted 9.7 points to 84.5 – the lowest reading in 12 years. Deteriorating consumer attitudes are an important warning flag for the U.S. economy. Read our Market Insight for more detail on this critical report.
- The Producer Price Index (PPI) increased more than forecast in the latest report. Overall producer prices rose 3% year-over-year while Core prices, which remove the volatile food and energy components, rose 3.3%. This inflation measure tracks wholesale prices earlier in the supply chain and often leads increases in consumer prices. This report warns that inflation could heat up in the coming months.
TECHNICAL UPDATE
- InvesTech’s Artificial Intelligence (AI) Index sank further this week as confidence in the AI fervor continues to fade. This Index has now fallen -20% off its all-time high sending a warning that more speculative assets are struggling to regain strength, and the rest of the market could be in trouble.
- The Gorilla Index has held up better than the AI Index, but it is still showing concerning signs of weakness as it sits nearly -6% off its peak hit late last October. If this Index definitively breaks through recent lows, it would confirm the breakdown in AI and be a critical warning to batten down the hatches.
- We are closely watching this technical deterioration and have additional defensive steps planned for the Model Fund Portfolio if key thresholds are broken in these important indicators. Meanwhile, the Portfolio is poised to take advantage of the continued rotation out of mega-cap growth stocks into more value-oriented sectors.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week which has a net invested equity allocation of 54%. This is comprised of 59% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 31% cash held in short-term Treasurys or a money market fund.