Stocks fell in the holiday-shortened trading week as bond yields rose dramatically. Critically, the InvesTech Negative Leadership Composite moved toward important warning territory…
MACROECONOMIC UPDATE
- The Producer Price Index (PPI) came in higher than expected, rising 5.4% year-over-year, up from 4.8% last month, while the Core rate (which excludes the volatile food and energy components) rose 4.6% – up from 4.3% in July.
- The Consumer Price Index (CPI) also showed firm inflation as the annual rate was unchanged at 3.4%. The annual Core rate declined slightly from 2.5% to 2.4%, but its monthly rate of change was higher than expected – a concerning sign that inflation could be heating up. The high PPI and CPI readings moved expectations of a Fed rate hike at next week’s FOMC meeting to 85%.
- The National Federation of Independent Business (NFIB) Small Business Optimism Index fell from 99.8 to 98.7 as a steep decline in expected business conditions pulled the Index lower.
- Consumer Sentiment dropped from 51.7 to 47.8 as Future Expectations plunged and concerns over rising prices kept consumer attitudes in the doldrums.
- Existing Home Sales fell 2% in August as rising mortgage rates made purchases increasingly unaffordable, even as Inventory rose 3.2%.
TECHNICAL UPDATE
- The AI Index fell this week as concerns regarding the safety of AI development made headlines. Investor exuberance in the space continues to be volatile, and it remains essential to watch for a prolonged breakdown in the Index and a fall through recent lows to confirm that the frenzy is truly coming to an end.
- More importantly, bearish Distribution in the InvesTech Negative Leadership Composite (NLC) moved to -48 as downside leadership increased significantly this week. If Distribution falls through the critical threshold of -50 it will be an important warning that a market downturn could be imminent.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which is comprised of 62.5% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 27.5% cash held in short-term Treasurys or a money market fund. This results in 57.5% net equity exposure.
Latest issue of InvesTech Research out later today!
Due to our team’s participation at the Glacier Summit Wealth Conference next week, the September issue of InvesTech has been published a week early!
Inside this issue we reveal the new warning shots from housing, critical updates on Fed policy, and introduce a new InvesTech Indicator to track the next stage of the AI frenzy…