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Markets staged a traditional pre-holiday rally this week in lighter volume trading – and with the bounce driven by rising expectations of another Fed rate cut in December. At the same time, leading Economic Data provided a strikingly different outlook for market risk ahead.
MACROECONOMIC UPDATE
- Pending Home Sales for existing homes remained mired in sluggish territory. While up 1.9% from September, the latest reading fell -0.4% from one year ago and continues to hover near 25-year lows.
- Consumer Confidence from the Conference Board surprised to the downside by falling -6.8 points to an overall reading of 88.7 – dragged down by lower readings in all components. This was the fourth consecutive month of decline.
- The Present Situation component was down -4.3 points, while the more important Future Expectations component tumbled -8.6 points to 63.2. This expectations component has been below 80 since February – which is considered the Conference Board’s warning level of a recession within the next year.
- The report specifically noted that, “expectations for increased household incomes shrunk dramatically, after six months of strongly positive readings.”
TECHNICAL UPDATE
As noted in our latest issue earlier this month, the path into a bear market is often “unsettling and unforgiving.” And while the jury is still out on whether accommodative Federal Reserve action can put the bull market back on top, it indisputably remains a high-risk market for a number of important technical and valuation reasons…
- This week’s bounce was led by our InvesTech Artificial Intelligence (AI) Index, followed closely behind by our InvesTech Gorilla Index, as both speculation and momentum returned to center stage (for now).
- The bearish Distribution in our Negative Leadership Composite eased somewhat from -19 to -13, and the light pre-holiday volume allowed an uptick in bullish Selling Vacuum. But our focus will remain on whether Distribution increases to the downside heading into yearend – which could be the deciding factor in confirming a bear market.
InvesTech Model Fund Portfolio
There are no changes in our InvesTech Model Fund Portfolio this week, which remains defensively positioned with a net invested equity allocation of 50%: 55% long positions, 5% in an inverse (bear fund) ETF, 5% in an intermediate Treasury ETF and 35% cash held in short-term T-bills, or alternatively in a money market fund.