Speculative behavior and sloshing liquidity returned to the market this week as investors seemingly jumped from stock-to-stock with reckless abandon. At the same time, a flood of important macroeconomic data showed that the housing market is struggling, consumers are stretched, and the Fed’s inflation battle is heating up.
MACROECONOMIC UPDATE
- New Home Sales fell -6.2% on a month-over-month basis as they remain in the narrow range of the last few years. The level of inventory rose +1.7% and now represents a 9.4-month supply at the current sales rate – well above the balanced level of 4-6 months. This is an important sign that more inventory alone will not fix this stagnant housing market as affordability concerns remain the biggest problem.
- Consumer Confidence ticked down from 93.8 to 93.1 as consumers grappled with surging inflation. Over 60% of respondents noted that they are buying fewer items in response to rising prices while 50% said they are delaying purchases of expensive items.
- The Personal Consumption Expenditures (PCE) Price Index confirmed inflation is reheating as the 12-month rate rose from 3.5% to 3.8%. The Core measure, which removes the volatile food and energy components, came in at 3.3%, up from 3.2%. This is well above the Fed’s target of 2% and shows that price pressures are broad and not just contained to higher oil prices.
TECHNICAL UPDATE
- Bearish Distribution in the InvesTech Negative Leadership Composite (NLC) has dissipated to -0.4. We will continue to watch this indicator closely to see if market leadership continues to improve or if it deteriorates once again, signaling that danger is increasing.
- The InvesTech Gorilla Index and Artificial Intelligence Index bounced this week as speculative behavior returned to the forefront, but both indexes still remain below their all-time highs set late last year.
- The InvesTech Housing [Bubble] Bellwether Barometer improved slightly this week but remains near recent lows and more than -30% below its peak. A renewed decline in this important indicator would warn that the housing market is heading for further trouble.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which is comprised of 58% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 32% cash held in short-term Treasurys or a money market fund. This results in 53% net equity exposure.