Markets grew more volatile this week as selling pressure increased. Turbulence and risk will likely continue to increase in the coming weeks as markets come to terms with a slew of incoming Federal data.
MACROECONOMIC UPDATE
- The National Federation of Independent Business (NFIB) Small Business Optimism Index ticked down from 98.8 to 98.2 as owners reported worsening earnings and pointed to signs of labor market weakness.
- The Federal Government reopened this week following a 43-day shutdown – the longest in modern U.S. history. This means we will start to see Federal economic data come in as the agencies responsible for each report compile and release them. It is possible that some releases may continue to be delayed or skipped all together as they work to get back on schedule.
TECHNICAL UPDATE
- Margin debt jumped 5% in its latest release – lifting margin debt as a percentage of nominal GDP to a new all-time record high in October. In addition to warning of dangerous leverage in today’s market, this tells us that investor speculation is at a historic extreme [see Market Insight].
- The InvesTech Artificial Intelligence Index tumbled further this week – dropping -12% from its peak less than two weeks ago. This is a key warning that investor enthusiasm regarding the new technology could be starting to fizzle.
- More importantly, our research reveals that internal leadership data is continuing to deteriorate. This warns that bearish Distribution in our Negative Leadership Composite (NLC) could be confirmed before the end of next week, and could be a critical warning that the bull market has run out of gas.
InvesTech Model Fund Portfolio
There are no changes in our InvesTech Model Fund Portfolio this week. It remains defensively positioned with a net invested allocation of 50% (55% long positions, 5% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 35% cash held in short-term Treasurys or a money market fund).
Important Subscriber Note: You should have received an email from investech@investech.com via SurveyMonkey on Thursday of this week – rest assured that’s from us! If you did not receive this subscriber survey, please check your junk mail or send us an email at investech@investech.com. We’re excited to hear your thoughts, suggestions, and input as we strive to improve both our InvesTech Research Newsletter and our website. We appreciate your taking the time to share them with us. Remember, you’ll be entered to win one of 5 FREE one-year subscriptions if you complete the survey!