Significant volatility continues to rule the market, and major indexes are on track to close relatively flat this week. Beneath the surface, cracks widened for the stock market and economy as market breadth deteriorated and multiple reports showed inflation reheating.
MACROECONOMIC UPDATE
- Existing Home Sales ticked up +0.2% in April, providing yet another data point that the housing market remains stuck at historically low levels.
- The National Federation of Independent Business (NFIB) Small Business Optimism Index was essentially unchanged in its latest release, ticking up just 0.1 point to 95.9. This is below the historical average of 98, indicating that small business owners remain relatively pessimistic regarding the near-term environment.
- The Consumer Price Index (CPI) shot up from 3.3% year-over-year to 3.8% while the Core CPI, which excludes the volatile food and energy components, also increased – rising from 2.6% to 2.8%. This is an important signal that inflation is reheating, and price increases have already spread well beyond rising oil prices.
- The Producer Price Index (PPI) also rose rapidly, increasing from a 4.3% year-over-year rate in March to 6% in April (read Market Insight).
TECHNICAL UPDATE
- The InvesTech Advance-Decline (A/D) Divergence Index collapsed further this week as even fewer stocks participated in the market rally. This critical measure of market breadth will be essential to watch in the coming weeks as deteriorating breadth is a key warning sign of a faltering bull market.
- The Investech Housing [Bubble] Bellwether Barometer fell throughout the week as concerns of higher mortgage rates put pressure on housing-related stocks.
- The bullish Selling Vacuum in the InvesTech Negative Leadership Composite (NLC) has already begun to dissipate, dropping from 2.7 to 2.0 this week. Meanwhile, internal analysis shows that negative leadership is building and bearish Distribution could reemerge as soon as next week. A reemergence of Distribution would be an important warning that this narrow market rally is running out of gas.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which is comprised of 58% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 32% cash held in short-term Treasurys or a money market fund. This results in 53% net equity exposure.
Latest issue of InvesTech Research out later today!
Volatility, internal divergences, and speculation have all increased this month. So, in this issue we…
- Examine the critical thresholds in our key proprietary indicators.
- Reveal an important history lesson with significant parallels to today.
- Investigate the economic risk from squeezed consumers.
- Take a deep dive into the monetary environment the new Fed Chair, Kevin Warsh, is stepping into.
Most importantly, we walk through how to invest for resilience and profits in a high volatility, high risk market.