Volatility continued this week as the FOMC chose to hold Fed interest rates steady in the face of persistently sticky inflation, yet bond vigilantes took matters into their own hands… (see Market Insight). In addition, earnings from several large technology companies underscored the growing cost of the AI buildout, with capital spending accelerating and free cash flow coming under increasing pressure.
MACROECONOMIC UPDATE
- Consumer Confidence ticked down from 92.2 to 90.8, as the Present Situation component fell to its lowest level in more than 5 years. Consumers remain concerned about higher inflation and indicated pessimistic views of business and employment conditions (see Market Insight).
- The Personal Consumption Expenditures (PCE) Price Index showed a slight slowdown in overall inflation as the overall year-over-year change declined from 4.1% to 3.7%, largely in response to falling oil prices. The Core rate, which excludes the volatile food and energy components, came in at 3.3% – just slightly below last month’s reading of 3.4%.
- The final reading for Consumer Sentiment in July came in at 55.2, which changed little from the preliminary reading. Despite the improvement in sentiment from June’s dismal survey, the Index remains near its lowest level in history as consumers continue to reflect a generally somber view of the economy amid persistently sticky inflation.
TECHNICAL UPDATE
- Bearish Distribution in the InvesTech Negative Leadership Composite (NLC) hovered around -3 to -5 this week as market leadership remains in limbo. The NLC continues to be essential to watch, and it will provide important confirmation that the market is in trouble if leadership continues to deteriorate.
- The InvesTech AI Index, which includes companies across the AI ecosystem, fell this week as struggling semiconductor stocks and concerns over excessive spending dragged it lower.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which is comprised of 56.5% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 33.5% cash held in short-term Treasurys or a money market fund. This results in 51.5% net equity exposure.