Information Technology stocks fell sharply this week as disappointing earnings reports from multiple major players exposed growing cracks in the AI trade. At the same time, defensive and value-oriented sectors like Consumer Staples and Health Care demonstrated strength as investors rotated toward more resilient areas of the market.
MACROECONOMIC UPDATE
- New Home Sales ticked down -0.6% in September as the housing market remains stagnant in the face of elevated mortgage rates.
- Consumer Confidence rose 7.5 points to 91.7 as attitudes improved on a brief reprieve in gas prices. Even with this increase, the Index remains below the level of four months ago.
- The Personal Consumption Expenditures (PCE) Price Index continued to show increasing inflation as the overall annual rate came in at 3.6%, up from 3.4% the prior month. The Core PCE index, which excludes the volatile food and energy components, rose at a rate of 3.1%, up from 3.0%. Both measures remain well above the Fed’s 2% inflation target. Despite continued inflationary pressures, the Fed decided to hold off on an additional interest rate hike this week. This sets the stage for a crucial meeting in December as the Fed Battle rages on.
TECHNICAL UPDATE
- The InvesTech Negative Leadership Composite (NLC) remains below the critical warning threshold of -100, signaling that the market is extremely vulnerable to a downturn.
- The InvesTech Gorilla Index has fallen for six consecutive days, and it is on track for another loss today. The sustained weakness in these mega-cap leaders is a sign that the top heavy S&P 500 Index could be losing steam.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which remains defensive and is comprised of 62.5% long positions, 8% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 24.5% cash held in short-term Treasurys or a money market fund. This results in 54.5% net equity exposure.