Markets moved higher this week as reactive volatility continued. At the same time, historically low Consumer Sentiment and the combination of weak stock market breadth and a lack of confirmation from key technical indicators warn that this rally is on unsteady footing.
MACROECONOMIC UPDATE
- New Home Sales rose 7.4% in March to a seasonally adjusted rate of 682,000. Despite the improvement, sales remain within the same narrow range of the last 3 years.
- The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) ticked down from 54.0% to 53.6%, remaining in expansion (>50%). Meanwhile, the Employment subindex stayed in contraction (<50%) at 48%, and price pressures remained extremely elevated, as the Prices subindex held firmly in expansion at 70.7%.
- The labor market report for April showed relative stability as 115,000 jobs were added and the unemployment rate was unchanged at 4.3%.
- Consumer Sentiment dropped 1.6 points to a new all-time low of 48.2. The Current Conditions Index fell 9% – also hitting a record low. Consumers expressed significant concerns regarding high prices and their personal finances.
TECHNICAL UPDATE
- The InvesTech Gorilla Index and AI Index rose this week but still remain well below their all-time highs. This exemplifies the narrowness of the market rally, with even the mega-cap darlings and speculative AI favorites failing to confirm new highs.
- The InvesTech Advance-Decline Divergence Index has been in a downtrend since the end of March and fell further throughout the week. This indicates that breadth is not in line with S&P 500 performance, and it warns that the market is vulnerable. A meaningful improvement in breadth –and reversal in this indicator– would be an important sign that the rally is strengthening.
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.