The S&P 500 and Nasdaq moved lower this week as AI-related stocks remained under selling pressure. Meanwhile, value and defensive stocks continued to show strength.
MACROECONOMIC UPDATE
- The National Association of Home Builders (NAHB) Housing Market Index dropped three points to 29, the lowest level since 2012. This is an important warning flag for the housing market (see Market Insight).
- The Pending Home Sales Index plunged -7.3% to the lowest level on record as rapidly rising mortgage rates put pressure on affordability.
- Housing Starts dropped -5.2% while Building Permits ticked down -0.2%. Both measures remain broadly in line with the level of the last few years.
- The Leading Economic Index (LEI) was unchanged in September as stability in the labor market was offset by plunging consumer expectations. The LEI continues to indicate that the economic path forward remains uncertain.
- The final Consumer Sentiment report for October ticked up slightly from the preliminary release as the overall Index remains near its all-time low.
TECHNICAL UPDATE
- The InvesTech Data Center Index fell further this week as AI buildout-related stocks continued to struggle. This persistent downturn is a signal that investor enthusiasm regarding the new technology could be starting to falter.
- On Thursday, the S&P 500 fell -1.2%, and the S&P 500 Equal Weight Index rose +0.8%. The cap-weighted Index has fallen more than -1% while the equal weight rose by over +0.5% only two other times on record: April 14, 1999, and March 30, 2000. These were both near the top of the Tech Bubble, as investors became wary of internet-related stocks and rotated aggressively towards other areas of the market. This is another warning that the AI trade may be running out of steam and the market has entered an extremely high-risk period.
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.