Markets moved decisively downward this week as volatile oil prices and the conflict in the Middle East continued to weigh on investors. In the meantime, InvesTech’s “Big 3” technical indicators are ALL breaking critical thresholds and making a bear market increasingly likely.
MACROECONOMIC UPDATE
- At Wednesday’s FOMC’s meeting, the Fed held interest rates steady citing pressures on both sides of its employment/inflation mandate and increasing unpredictability.
- The National Association of Home Builders (NAHB) Housing Market Index ticked up from 37 to 38 in March. While this was a slight improvement, the Index remains below 50, indicating that home builders continue to be broadly pessimistic.
- Pending Home Sales ticked up +1.8% in February on slightly lower mortgage rates. However, this reprieve is unlikely to continue as mortgage rates have moved higher in March, up to 6.22% from 5.98% at the end of February (according to Freddie Mac).
- New Home Sales collapsed in January, falling -17.6% to the lowest sales rate in over 3 years. These reports show that the housing market continues to sit on unsteady footing, and its path forward remains uncertain.
- The Producer Price Index (PPI) rose unexpectedly in February, with the core rate (which excludes the volatile food and energy components) increasing from 3.5% to 3.9% year-over-year, while the overall rate jumped from 2.9% to 3.4%. This signals that price pressures are rising through the supply chain – even before the start of the conflict in Iran.
- The Leading Economic Index (LEI) fell to a new low in January, dropping -0.1%. It has fallen in 43 of the last 47 months – sending a strong recessionary warning.
TECHNICAL UPDATE
- The InvesTech Housing [Bubble] Bellwether Barometer dropped further this week, now sitting -34% below its peak from September 2024. As this Indicator continues to fall, it is sending an important warning that instability in housing is spreading. The fallout of sustained significant weakness in this sector would likely impact consumer psychology and broader financial markets.
- The InvesTech Gorilla Index fell to a new low this week as the mega-cap momentum stocks slid further out of favor. The continued decline in this Index signals that the stock market could be heading for even bigger trouble.
- Bearish Distribution in the InvesTech Negative Leadership Composite (NLC) dropped to -14 this week and is on track to fall further. An accelerated decline from here toward -100 would confirm the probability of a bear market.
INVESTECH MODEL FUND PORTFOLIO
InvesTech’s safety-first philosophy is built to weather uncertainty and high-risk periods like today, and we continue to closely monitor the weight of the evidence as the defensively positioned Model Fund Portfolio remains positive year-to-date.
There are no changes to the Model Fund Portfolio this week, which is comprised of 58% long positions, 7% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 30% cash held in short-term Treasurys or a money market fund. This results in 51% net equity exposure.
Latest Issue of InvesTech Research Out Later Today!
Inside the March issue of InvesTech, we dive into past military conflicts and important lessons that could be applied to the current war with Iran and the Fed’s inflation battle. We also revisit our “Big 3” proprietary technical indicators – which are all breaking critical thresholds. Last, but certainly not least, we introduce a new proprietary technical indicator built to track risk related to private credit.