Investors continued to grapple with a rapidly shifting geopolitical landscape this week as volatility rippled through both the stock and bond market. Meanwhile, InvesTech’s Negative Leadership Composite (NLC) began to ring alarm bells.
MACROECONOMIC UPDATE
- The National Association of Home Builders (NAHB) Housing Market Index (HMI) rose from 34 to 37 in May as builders continued to cut prices and use sales incentives in an effort to spur demand. The HMI has now been below 50 for 25 months, a level that indicates widespread pessimism regarding the current and near-term outlook for housing.
- The Pending Home Sales Index for Existing Homes rose +1 point to 74.8. Although a slight improvement, the Index continues to hover near all-time lows.
- In a reversal from last month, Building Permits rose by +5.8% while Housing Starts fell -2.8%. While both measures remained well within their small range of the last few years, the back-and-forth swings in these two datapoints echo the results of other indicators that suggest the housing market remains in the doldrums.
- Consumer Sentiment plummeted to a new all-time low of 44.8. The subindexes for Current Economic Conditions and Future Expectations both collapsed to new all-time lows as well (see Market Insight).
TECHNICAL UPDATE
- Bearish Distribution in the InvesTech Negative Leadership Composite (NLC) now sits at -4.9 in an important warning that this narrow market rally could be running out of gas (see Market Insight). If leadership continues to deteriorate, it will signal that trouble may lie directly ahead.
- The InvesTech Gorilla Index remained essentially flat this week as the former leaders still struggle to make headway in this narrow rally. If weakness in this Index continues and it begins to fall, it would be a sign that the market is breaking down.
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.