The S&P 500 and Nasdaq fell this week as Tech stocks came under selling pressure. Importantly, more defensive sectors actually rose during the selloff.
MACROECONOMIC UPDATE
- Existing Home Sales ticked up 1.5% in September. However, sales remain near the lows of the 2008 Housing Crisis.
- The National Federation of Independent Business (NFIB) Small Business Optimism Index ticked down 0.8 points to 97.9. This is in line with the 52-year average of 98.0. The Uncertainty Index, however, moved up to 90 – a historically high level.
- The Consumer Price Index (CPI) came in above economist expectations. The overall annual rate increased from 3.4% to 3.7%, and the Core rate, which excludes the volatile food and energy components, rose from 2.4% to 2.6%. This indicates that price increases are permeating the market beyond rising energy costs (see Market Insight).
- Rising price pressures were also evident in the Producer Price Index (PPI), which measures inflation higher up in the supply chain. The annual rate jumped from 5.6% to 6.3%, and the Core rate rose from 4.8% to 5%.
TECHNICAL UPDATE
- The InvesTech Data Center Index dropped -11% this week as AI buildout-related stocks came under significant pressure. The InvesTech AI Index, which looks at companies across the AI ecosystem, fell -4%. Both Indexes are on track to tumble lower through Friday, and a significant breakdown would warn that investor enthusiasm regarding the new technology is faltering.
- Market leadership is continuing to deteriorate, and Bearish Distribution in the InvesTech Negative Leadership Composite (NLC) remains below -100. This signals an increased probability of a large correction or bear market.
INVESTECH MODEL FUND PORTFOLIO
There are no changes to the Model Fund Portfolio this week, which remains defensive and is comprised of 62.5% long positions, 8% in an inverse index ETF, 5% in an intermediate Treasury ETF, and 24.5% cash held in short-term Treasurys or a money market fund. This results in 54.5% net equity exposure.
Latest issue of InvesTech Research out later today!
In this month’s issue, we dissect the rapidly changing monetary outlook and reveal the bellwether breakdowns and sharp technical divergences. We also take a deep dive into how to properly diversify away from the highly concentrated index. This market is quickly changing, and you won’t want to get caught by surprise!