Stocks moved higher this week as the conflict in the Middle East moderated and a weaker-than-expected Jobs report potentially pushed Fed hikes further down the road.
MACROECONOMIC UPDATE
- The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) edged higher from 53.3% to 55.6% – the highest level in four years.
- The ISM Services PMI was essentially unchanged at 54.1%, still in expansion (>50%). However, the Employment measure fell into contraction (<50%) at 47.4%, and the Prices measure rose from 67.7% to 70.3% as price increases accelerated.
- Nonfarm payrolls fell by 23,000 in July and jobs in May and June were downwardly revised by 103,000. At the same time, the unemployment rate ticked down to 4.1% from 4.2% largely due to a decline in the labor market participation rate. The weak jobs report indicates that the labor market is cooler than expected – something that could delay Fed hikes.
TECHNICAL UPDATE
- The AD Divergence Index moved downward as the S&P 500 rallied, but breadth deteriorated. If breadth continues to falter, it would be a warning sign that this rally is near an end.
- The AI and Gorilla Indexes bounced this week as speculation roared back. However, both Indexes remain below their highs from late last year, as does our InvesTech Housing [Bubble] Bellwether Barometer. We are waiting for a significant breakdown in any one of these critical indexes to confirm that Wall Street is heading for major trouble.
INVESTECH MODEL FUND PORTFOLIO
Following the 3% addition of FNDF (an international value fund) earlier this week, the Model Fund Portfolio is comprised of 59.5% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 30.5% cash held in short-term Treasurys or a money market fund. This results in 54.5% net equity exposure.