Recent Publications

Initial jobless claims decline, while job cut announcements hit lowest level since 2000. Consumer comfort holds up. But housing affordability deteriorates. Trade deficit widens to a new record.

We analyze 12 sub-cycles and the overall cycle. The economic recovery continued in Q2 amid ongoing stimulus and easing COVID restrictions. But shortages and capacity constraints held back growth.

Despite the S&P 500 rising to new records, July was a risk-off month for sector leadership. Daily COVID cases jumped to their highest level since January during the month. Sector model is sending mixed messages between Growth, Value, and defensive sectors.

We could see both yield levels hit in the remainder of the year. Yields could first fall further as the market is not overly bullish. Yields could rebound on renewed economic optimism and Fed taper.

ISM Services PMI jumps to a record, while Markit PMI pulls back. But both suggest robust growth in early Q3. Marked moderation in ADP private payrolls growth. Light vehicle sales continue to crater, due to severe shortages.

Few themes outperformed the S&P 500 in July as an underlying risk-off move continued. Cybersecurity and Lithium were among top performers while China Tech, EV SPACs, and Cannabis themes plunged. We closed out our small-cap Value and Healthcare Services trades in July but continue to look for upgrade opportunities in clean energy and infrastructure.

DAVIS100 and S661A show P/E ratios have come down thanks to booming earnings, but they remain overvalued. Earnings are expected to boom higher, but that has not always been a good sign. It appears economists have finally stepped in line with the boom, as economic surprises, which had been positive, have turned more neutral. Brokers' customers are highly leveraged.

We are shifting 5% from cash into bonds in our U.S. asset allocation. Seasonal trends are turning negative toward stocks. Q2 earnings season has been a repeat of Q1, with record beat rates, upward revisions, and room for more upside in coming quarters.

Remaining bullish on gold and bearish on U.S. dollar, with sentiment extremes and short-term composites supporting chances for dollar decline and gold rally. Gold Watch aggregate trending higher with gold while long-term dollar composite remains negative. Nominal and real interest rate trends support gold while negative real rate differentials remain bearish for dollar.

An increase in factory orders bodes well for manufacturing activity. Household debt increased in Q2, while delinquency rates remained low, due to forbearance and foreclosure moratorium.

Economic indicators and earnings are supportive for European equities. Trend indicators remain bullish, but defensive strategy divergences are giving some cause for concern. On balance we remain constructive on European equities.

Investors expecting more ECB easing to hit inflation target, amid signs of peak growth and fading economic surprises. Ten-year bund yields have fallen to six-month lows causing spreads to firm. European inflation expectations breaking out and U.S. getting closer.

Top-level model kept 86% stock allocation. Highest allocations are with U.S. Large Caps, U.S. Value, and U.S. Growth. Five of the six top-level indicators favor global stocks.

ISM Manufacturing PMI pulls back, but growth still strong. Shortages and bottlenecks continue to be an issue for both output growth and inflation. Construction spending disappoints due to weak nonresidential and public sectors.

Big Mo Tape has been on the verge of a bearish breadth warning. Big Mo Tape is confirmed by a plunge in the number of stocks above their 10-week (in particular) and 40-week moving averages. With cycles about to turn down, I am concerned about the poor breadth confirmation on the booming Nasdaq.

Income and spending surprise on the upside. Inflation pressures mount, but "transitory" narrative still strong. Consumer sentiment off in July, weighed down by inflation concerns. Employment costs remain subdued. Regional factory activity mostly strong.

The Delta variant poses a threat to our expectation of accelerating global growth through Q3. But a review of timely and high frequency statistics show that the recovery so far remains on track. In addition to COVID, supply and demand imbalances could hinder the recovery.

We close out our Overweight Healthcare Services trade, at the targeted close date of July 30. There are years when it pays to "sell in May and go away" and overweight defensive industries, but this summer is not shaping up to be one of those periods. While the SPDR S&P Health Care Services ETF (XHS) returned a respectable 3.5% since our May 12 upgrade, the S&P 500 has spiked 8.7%, an annualized return over 48%.

We are encouraged by the Q2 nominal GDP report that showed higher Transportation Equipment (+49.2% Y/Y) and Industrial Equipment (+23.8% Y/Y) spending. Nonresidential structures (-3.3% Y/Y) growth was lagging but a $1 trillion infrastructure bill should lift that $570 billion category.

Consumer price inflation is the cruelest tax of all, in that it mainly impacts the poor who live from paycheck to paycheck without other assets. Real weekly earnings turn negative over the last year, which is consistent with poor growth prospects. Reuters/University of Michigan consumer sentiment has begun to falter.

Earnings growth reducing valuation pressure with expectations still rising and positive revisions at record highs. With earnings yields above bond yields and economic growth increasing, global growth-adjusted relative valuation is now high and rising. ACWI's cyclically-adjusted yield continues to decline, though it's not near levels reached at secular top.

Consumer spending and capex drive Q2 growth, but shortages and bottlenecks curb the momentum. Inflation surges. Initial jobless claims recede. Consumer comfort rebounds. Pending home sales retreat amid soaring prices.

The Chemicals industry, commodity trends, and emerging markets have all weighed negatively on Materials. Materials' intra-month composite model score is at its lowest reading since March 2020 and is second lowest among all sectors. We have Materials on watch for a downgrade.

The "substantial" qualifier will not be removed at Jackson Hole but could be in the September statement, paving the way for a taper announcement later this year. Risk of a faster MBS withdrawal appears to be priced in. With respect to inflation, Powell equates transitory with temporary.

The drop in U.S. Treasury bond yields has led the cell tower REITs in our 5G Network Infrastructure Portfolio to outperform. Joe Kalish recently moved to neutral on duration and indicated it could be difficult for the 10-year yield to reach his 1.70% - 1.75% yearend target, indicating a "lower for longer" rate environment. Pending the FOMC announcement today, we may overweight the 5G group vs. SPY as a tactical trade while rates remain low.

A wider goods trade deficit expected to subtract from Q2 real GDP growth. Mortgage purchase applications decline. Employment dynamics continued to normalize in Q4 2020.

FCF/EV has an elevated factor composite score and strong performance over time. Select companies based on cash position, long-term eps growth/eps stability, price momentum, earnings revisions, and free cash flow/enterprise value. Favored stocks include: Facebook, UnitedHealth, Oracle, Accenture, Danaher, Lowe's, Deere, CSX, Emerson.

Investors Intelligence recently showed 80% bulls (among those with a strong opinion), the highest reading since 2/2/2018. Moreover, the 52-week average of overall bulls is the highest since 1977. Equity ETF flows have been higher so far this year than any prior full year. Several valuation indicators are near record highs in optimism.

Consumer confidence up marginally. Purchasing plans improve. Durable goods orders rise less than expected, but still show solid capex demand. Existing home prices surged in May amid persisting housing shortages. Richmond Fed manufacturing activity up, but services waver.

Payments to shareholders have remained high since the pandemic started, but the composition has changed. The drop in repurchases has been offset by a rare net debt reduction. Watch for reversals in both. Shareholder yield and net debt reduction yield are among the few valuation metrics that do not show the stock market as expensive.

External indicators, including earnings revisions, rig count momentum, and energy sentiment are broadly supportive of the European Energy sector. However, technical indicators are bearish and there are significant uncertainties as to the long-term outlook for earnings relating to climate policy. Mixed signals suggest a neutral allocation to the Energy sector.

Real yields would normally increase as the outlook for the economy improves. Generous accommodation from the major central banks has likely led to distortions in real yield relationships. Real rates have mattered for gold, tech, cyclicals, and small-caps.

U.S. large-cap Tech, rare earth miners, and batteries make new highs (SPY, QQQ, REMX, LIT). EM dragged down by China Tech (VWO, IMCH, KWEB). But...EM, Value, and Staples see inflows and Q's have outflows (QQQ).

New home sales decline to lowest level since April 2020 on higher prices and capacity constraints. Texas factory activity eases slightly.

The NDR Inflation Timing Model downticks but remains on its November 2020 "buy signal." Price pressures remain intense, but they could be transitory if asset prices decline. Big Mo Tape remains just mildly bullish.

Services PMI falls in July, although Manufacturing PMI hits another record. Price pressures remain high amid capacity constraints.

Our equal-weighted Battery Technology ETF portfolio recently appeared on our TO_CROSS.RPT with a bullish golden-cross signal (50-day SMA > 200-day SMA) largely on increased demand for lithium.

Below average loan demand is generally bullish for stocks, but not necessarily financial stocks. Very high levels of debt relative to GDP is generally consistent with below average GDP growth - this year is an exception. But short-term loan or credit demand is complicated. I am skeptical of definitive conclusions on debt flows, but I did want clients to be aware of the current unusual situation.

Economic growth rates continue to move toward normalcy. But the expansion remains unbalanced, while the winners early in the COVID crisis may be subject to downside as the year progresses. Can China orchestrate a pick-up in potential growth in the face of domestic and overseas headwinds?

Equity markets remain near all-time highs. Leadership is narrowing and short-term breadth is deteriorating. Other measures of breadth are also declining.

Latest dip relieved excessive optimism and produced an oversold condition, with macro influences remaining bullish. ACWI now close to record highs again. Watching for reassertive risk-on environment, breadth thrust signals, longer-term breadth improvement, receding concentration, and a buy signal from the Rally Watch aggregate.

CFNAI and state coincident indexes show slower growth in June, but minimal recession risk. Leading indicators point to a strong expansion in 2H 2021. Existing home sale rebound. Architecture billings trend bodes well for the commercial construction outlook. Surprise increase in initial jobless claims. Consumer comfort continues to weaken.

COVID leaders have regained leadership as COVID cases trend higher. Growth sectors have acted more defensive since the start of the pandemic. Models and indicators are still processing the impact of the COVID surge.

An inverted inflation curve suggests inflationary pressures are largely transitory. The copper/gold ratio has retreated but not broken down, suggesting lingering input cost pressures. The Credit Impulse for the U.S. has collapsed, implying a lack of persistent inflationary pressures.

We are close to a stop-loss for our Overweight Homebuilding trade. The headwind for builders is that housing indicators, including the HMI and new home sales, continue to slow from their frenzied October-January pace.

When economic sentiment is elevated, select companies efficiently using their assets to generate profits. Choose stocks based on price momentum, lower accruals ratio, gross profit/assets, operating cash flow yield, and net payout yield. Selected stocks include: BASF, Hennes & Mauritz, Continental, Suez, Adecco, Kesko, Ferguson, Next, Entain, Evraz, Kingfisher, Burberry.

"Sidelined" (money market) cash is very low relative to stock holdings and relative to the value of the stock market. Real (minus inflation) dividend yields are the lowest in 40 years. Real earnings yields are at record lows.

The percentage of stocks above their 50-day moving averages has fallen, especially among cyclical sectors. Most other technical indicators remain positive. Significant technical deterioration would necessitate reducing exposure, if sentiment, macro, and fundamental indicators continue on their current paths.

Housing starts surprised on the upside, but building permits declined more than expected. This suggests some weakness in building activity in the near-term. The NBER declares the recession ended in April 2020.

Increasing bond exposure to 100% of benchmark duration from 90%. Closing out curve steepener trade. Renewed concerns over COVID-19 could result in economic disengagement and postpone the taper and rate hikes. It could be difficult for the 10-year Treasury yield to move up to our projected range of 1.70% to 1.75% at yearend.

HMI pulls back slightly, but is still higher than any other time before the pandemic. Implies some moderation in housing starts growth.

The mostly "for fun" NDR Cycle Composite seems to have done a decent job mapping out stocks' direction so far for 2021, but it peaks later this summer. Most market trends lean strongly upward, but perhaps part of the Dow Theory is also giving a trend warning. Watching S105 and DAVIS250 for stop-loss points.

Retail sales rise in June, mostly due to higher prices. Inflation fears weigh on consumer sentiment. Housing affordability deteriorates, led by surging home prices. Business inventories up, but supply/demand imbalance still severe.

The proposed bipartisan plan would dedicate $55 billion to improving water-related infrastructure -- three times the size of current water-related construction spending. We are watching the Invesco Water Resources ETF (PHO) for a breakout. We like this ETF as the most liquid, U.S.-focused Water-themed ETF.

Shifting exposure to bonds from cash - now underweight. Reallocating from Emerging Markets to U.S. - now underweight EM and overweight U.S. Models reflect improving global economic outlook, a macro environment conducive to rallying stocks and commodities, and improved bond performance with inflation expectations contained. Reallocating 5% from cash to bonds, 7% from EM to U.S.

Employment Trends Index is still super bullish. But NDR's average ISM looks to have put in a peak for economic momentum. Weirdly low loan demand is a mixed sign. Exports boom, but imports even more so, leaving us with a record trade deficit, and export orders may have peaked.

Industrial production up slightly, led by utility and mining. But manufacturing output falls, due to shortages. Regional factory activity mixed in July. Import prices continue to increase. Jobless claims post another pandemic low. But consumer comfort still slipping.

Downgrading Financials and Industrials to marketweight and upgrading Technology to marketweight. The moves effectively neutralize the cyclical Value bias we carried during the 1H. Our models will determine if we shift more toward Growth or Value in 2H.

Global PMIs indicate that growth slowed modestly in June amid rising COVID cases and supply chain issues. Services continued to outpace manufacturing, while developed economies have been outperforming emerging markets. Despite the modest hiccup in PMIs, leading indicators point to robust growth through at least yearend.

Several economic and financial metrics have likely seen their peaks for this cycle. Such behavior is quite normal during an economic expansion. Although the economy will be decelerating in the coming quarters, it doesn't mean the expansion is ending anytime soon.

The yield on the 10-year Treasury is near an inflection point. Where yields go from here will determine which themes outperform in the 2H. In a low yield world, Technology, a newly anointed defensive sector, will likely outperform. If yields rise, reflation themes like natural resources and uranium should resume their uptrends.

Broad-based increase in PPI inflation. Intermediate price pressures also surge. Government on track for a record budget deficit in fiscal year 2021. Mortgage applications jump in the latest week, but y/y momentum shows easing demand.

The year-to-year change in the S&P Industrials P/E ratio gives a sell signal. Booming earnings are bringing P/E ratios down, but they are still at very high levels. They look even worse if inflation is included.

Upward earnings revisions were the unsung hero of the strong first half. Whether historically high beat rates, EPS revisions, EPS growth, and margins are peaking could determine how the second half unfolds. Repurchases appear ready to explode.

Broader increase in consumer prices in June. But the case for a temporary spike is still strong. Small business confidence rising. Cass freight shipments ease, while expenditures soar on capacity constraints and shortages.

Historical analysis suggests that selecting European stocks based on well-known factors can generate excess returns. However, individual factors can underperform for significant periods of time. Tactical allocation to risk-on and risk-off factors can help improve absolute returns, while multi-factor portfolios can increase relative risk-adjusted returns.

The Fed acknowledged that maximum employment may look different from the pre-pandemic period. If so, Jackson Hole may be a more likely time to announce a policy framework for tapering. New insights on employment and liquidity.

U.S. large caps hit new highs and EM/China Tech make new lows (SPY, EEM, KEWB). Significant outflows from small caps and Value (IJS). EM equities, real estate, and transportation also experience large outflows (IYR, IYT).

The DJIA Total Return secular trend is overbought - is spring near ending? Trend in stocks, bonds, and home prices are all up but extended. Gold right at long-term trendline - crude is getting closer from very oversold. The dollar and commodities trend still likely down long-term.

Businesses restock amid stronger demand. Consumer borrowing is back.

Yesterday, the yield on the 10-year treasury dropped to 1.30%, the lowest level since February 18. The iShares 20+ Year Treasury Bond ETF (TLT) is again near intermediate-term overbought territory. Lower rates should benefit growth-oriented themes and our Tech Titans group is breaking out. However, we'd like to see additional indications that yields will remain lower for longer before abandoning reflation themes.

We follow our U.S. Strategy team and close out our "Overweight Small-Cap Value" trade. Weakness in Financials, VBR's largest sector weight, has been the greatest driver of underperformance. A peak in the 10-2 Treasury yield curve did not help.

Emerging markets diverging from commodity advance, influenced by interest rates and currency weakness. EM underperformance and U.S. outperformance consistent with secular bull in equities. Secular outlook for commodities may depend upon future inflation - watch inflation expectations.

Real economic liquidity plunges to a negative zone for stocks. Even adding fiscal and exchange rate policy to the mix, the stimulus is fading rapidly and inflation may be stickier than the Fed thinks. While long-term rates have come down, three-year note yields have barely upticked to a negative zone for stocks. Global nominal money supply, while still flowing, has peaked and the rate is now declining.

SPY attained another all-time high and its streak without a 5% correction continues. We remain bullish on equities but are alert for signs of trouble.

Initial jobless claims come in above consensus, but 4-week average posts another pandemic low. Consumer comfort wanes. Used vehicle values decline, suggesting less pressure on CPI inflation.

We are increasing our bond exposure to 90% of benchmark duration from 85%. Rising momentum, weaker inflation expectations, and abundant liquidity contributed to model improvement and a less defensive posture. Nevertheless, we expect to see modestly higher yields by yearend.

Clean energy, including solar, electric vehicles, and battery themes, rebounded in June. June had a COVID-era feel with big tech outperforming and travel and leisure underperforming. A breakout of COVID leaders relative to laggards would have positive implications for Tech-related themes.

Growth outperformed Value in June. Much of cyclical Growth's strength during the month can be credited to the FANMAG stocks. The sector model, which has mostly favored Value sectors in 2021, moved more neutral in June.

Job openings hit another record high. Mortgage application edge down.

Economic confidence is now excessive, which often coincides with stocks struggling. Consumers are very confident interest rates are headed higher, which again, is consistent with the opposite. We show stock and home prices from the view of the average worker.

Closing out tactical overweights to small-caps and Value. The moves are in response to models and maturing stock market and economic cycles. We remain bullish on U.S. equities on an absolute basis and versus bonds and cash.

ISM and Markit Services PMIs both pull back in June, but growth still solid. Price pressures high. Light vehicle sales fall to a ten-month low on lack of inventory. Employment trends strengthen at a robust rate.

Labor demand is improving faster than supply with the reopening of the economy. But large labor pool suggests frictions are temporary. Wage growth should moderate as more low-paying service jobs come back. Longer-term, productivity growth will be key, as it allows for a noninflationary rise in wages, and gradual Fed policy normalization.

Double-digit equity market corrections are normal. In bull markets we need to pay attention to indications of excessive complacency. While economic sentiment gives cause for concern, investor sentiment is not excessively complacent.

We study five diverse indicators to measure APAC stock sentiment. There appears to be excessive optimism for the APAC region. At the country level, Australia and Singapore are showing the highest levels of optimism.

The economy will likely meet the Fed's criteria of "substantial further progress" this fall. The taper will commence in January 2022 at a pace of $12 billion a month. The first rate hike should occur in June 2023 but could be later.

Big Mo Composite gives a sell alert. Big Mo Tape remains mildly bullish. Big Mo External is negative.

Jobs recovery continued, although fewer seasonal layoffs in education boosted payrolls by 230,000. The household survey, esp. participation, was disappointing. But there was a big drop in people working part-time for economic reasons, as the economy reopened. Fed on track to announce a taper later this year.

Cannabis relative strength is at a critical stage of either resuming a near-term uptrend or intermediate downtrend. We fear further downside as national legalization of marijuana may not be a top Democrat priority.

Zero correlation between ACWI and bond yields. Spread between equity flows and bond flows has turned downward. If bond yields rise and correlation inverts, equity outflows could be expected. Watch relative ETF asset levels across regions.

Real GDP in Q2 should boom to "overbought" year-to-year levels that have historically been negative for stocks. Profits in Q2 should jump well above levels (above 20% growth) that have historically slowed stock gains. The output gap in Q2 should close, which has been a problem for stocks as the Fed has to think about tapering as resources get scarce.

Economic conditions have improved among most economies as vaccine rollouts gain pace, leading to a strong 2H recovery. The more-contagious Delta variant presents a risk to the outlook, but more so to emerging markets. All countries are seeing rising inflation pressures.

The S&P 500 rose 8.2% in Q2 and 14.4% in 1H, its second-best start this century. Gains were broad-based, with 11 out of 12 asset classes, all nine style boxes, and 10 out of 11 sectors up in Q2. Style, equity sector, and bond leadership shifted in Q2, but most Q1 leaders are still ahead YTD.

ISM and Markit PMIs still show robust factory activity growth. Price pressures surge. Jobless claims continue to dissipate. But consumer comfort wavers. Construction spending declines, led by the nonresidential sector.

Cyclical Growth sectors have broken out relative to cyclical Value sectors. FANMAG, however, remains in a relative trading range. Long-term breadth and interest rate outlook support cyclical Values sectors, but sector model is now more neutral.

We remain neutral on high quality tax-exempt munis. There is some relative value at the long end of the yield curve. We continue to favor lower quality munis and revenue bonds over GOs. We like the Hospital and Transportation sectors.

ADP payrolls up, led by leisure/hospitality. Regional manufacturing activity mixed. Pending home sales up, but a decline in mortgage applications suggests cooler housing demand ahead.

We close out our "Overweight Travel Related" theme, after our stop loss was triggered. Underperformance for travel-related has accelerated since mid-May, the same time that global new COVID cases bottomed and started to rise.

Margin debt hits record highs and is up 58% from 15 months earlier. Advisory service sentiment shows excessive optimism and has rolled over. The Tobin's Q measurement of valuation suggests stocks could struggle. Negative warnings from smart money secondary offerings and commitments of traders data.

Payers underperformed during and after the 2020 bear, before a brief rally from February - May 2021. A resumption of Growth over Value would benefit Non-Payers over Payers. Opportunities should exist within Value sectors for Payers to outperform Value benchmarks.

Consumer confidence nearly back to pre-recession level. Supports a positive economic outlook for 2H 2021. State coincident indexes show broad-based expansion. Existing home prices keep surging.

Relative strength in cyclical sectors has weakened recently. But narrative of a continued economic expansion is intact and remains broadly supportive of cyclical sectors. Comparisons with 2017 suggest cyclical sectors may continue to underperform near-term but outperform later in the year and into 2022.

With economic growth expected to be strong into next year, defaults should remain low and valuations high. We remain overweight high yield and expect modest outperformance in 2H. We continue to favor high yield over investment grade credit. Nevertheless, outperformance has slowed, interest is waning, and cash levels are low.

Top-level model fell to 86% stock allocation. Highest allocations are with U.S. Large Caps, U.S. Small Caps, and U.S. Growth. Indicator measuring momentum of PMI breadth turned negative, now favors bonds.

Economy has a boom underway with what should be double-digit real growth gains. Cycles are still up, but our Cycle Composite shows a big drop in the Fall. But the tape leans mildly bullish for now.

Personal income weighed down by waning government transfers. Despite new y/y highs, monthly PCE price gains ease. Consumer sentiment up for the month, led by expectations.

By our estimate, about 45% of the $1.2 trillion bipartisan infrastructure bill that Biden agreed to will be spent on transportation related (roads, bridges, waterways, ports, airports, EVs). If passed, the bill could add a strong tailwind to slow-growth transportation construction industries like Highway & Street (above), over the next five years. Perhaps some Industrials and Materials industries may even get attention from Tech investors that believe there is no alternative (TINA) for growth.

While strong price action argues demand is stronger than supply, other measures suggest "too high" prices might cool down demand soon. The NAHB survey peaked last November and buying plans plunged in the latest month. Lumber, copper, mortgage applications, and pending home sales have all weakened.

Monitor reflation theme in year's second half. Rising risk-on/risk-off ratio would reflect reflation sustainability. Watch influence on dollar, gold, commodities, and emerging markets.

Japan's economy may recover faster than anticipated, a constructive development for global growth. But it still lags the recovery in other parts of the developed world. We can learn some lessons from Japan's lack of inflation pressures.

Consumer Comfort rises to highest in over a year. Durable goods orders increase, led by aircraft. Q1 real GDP unrevised at robust 6.4% pace.

Rates and the yield curve have moved against Financials since the Fed's announcement. Loan demand has been weak, but a capex comeback could lead to a loan growth comeback in 2H. Sector model has moved more neutral on cyclical Value vs. cyclical Growth sectors.

Option volumes set a record in 2020. This year is on pace to break that record. The iShares Broker Dealer ETF (IAI) holds the stocks of companies that benefit from increased option trading and market volatility. Almost 40% of IAI is two investment banks. Further flattening of the yield curve represents a risk for holding such a large, curve sensitive position.

Fed's hawkish pivot led to a stronger USD and EM underperformance. EM markets better positioned than during 2013 taper tantrum. We remain overweight on better global growth and positive breadth and momentum.

This second-half outlook gives an update on our key themes laid out at the beginning of the year: Green Wave, Biden Agenda, and COVID Recovery. We also discuss three "X" factors expected to significantly impact our key themes: government laws/regulations, inflation expectations, and mean reversion. We highlight several ETFs that give exposure to key themes including PAVE, TAN, JETS and XHS.

New home sales slump amid supply shortages and higher prices. Mortgage applications pick up. Demand for nonresidential design services at 15-year high.

Earnings revisions has been one of the top-performing factors over time. Select companies based on cash position, long-term eps growth/eps stability, price momentum, earnings revisions, and free cash flow/enterprise value. Favored stocks include: Facebook, UnitedHealth Group, Accenture, Lowe's, Applied Materials, Target, Deere, Lam Research, Emerson Electric.

Oil prices have soared, and the "crowd" is bullish, but I am impressed at the caution of producers to come back online. Gold rallied nicely from record low optimism, but optimism has risen. 10-year T-note yields are hard to predict and are often contrary to crowd psychology. S574A was recently still excessively optimistic. ETF flows and record margin debt confirm that optimism. Real dividend yields plunge.

Home sales decline amid low inventory and falling affordability. Richmond Fed activity remains strong.

Add a slightly more hawkish Fed to a growing list of macro factors that are transitioning from being bullish to bearish for stocks. The Fed's decision could prolong the stock/bond correlation regime that has been in place since the late-1990s. The stock market uptrend, Value over Growth, and cyclical Value versus defensive Value are all near inflection points.

Analysis of the economic, earnings, and market cycles suggests a continuation of the current bull market. But economic sentiment is now excessive, suggesting much good news has been priced. Seasonality suggests a weaker third quarter.

TIPS are overvalued and on downgrade watch. Violent flattening of the yield curve could force steepening trade closure. Curve could re-steepen in the coming months.

CFNAI sets the stage for strong Q2 real GDP growth.

Dow averages have refused to confirm the new highs in the S&P 500 and the Nasdaq. Utilities and Financials are relatively weak in the S&P 500. But key leading indicators, like NDR Volume Demand and the daily A/D line, are quite hopeful. Big Mo Tape has likely peaked but remains mildly bullish.

When we upgraded SPDR S&P Health Care Services ETF (XHS), we assigned an 80% probability to the Supreme Court upholding the ACA.

In second half of 2021, watch indicators of volatility, investor sentiment, earnings expectations, and valuation. Room for lower volatility and higher optimism, with beat rate momentum rising, trailing earnings growth following forward, and trailing earnings yields following forward yields higher. Watch influence of interest rates and real economic growth.

Total credit market debt is at record high levels but its growth rate has slowed, as has its level relative to GDP. It is still consistent with slow growth and low inflation. The historical record of the twin deficits backs up the debt conclusion. Savings have clearly improved, but the net national savings rate still argues for risks going forward.

Broad-based increase in leading indicators in May. Philly Fed factory activity expands at a robust pace. Outlook strengthens. Jobless claims up last week, but 4-week average shows continued improvement in labor demand. Consumer economic expectations and comfort bode well for spending growth this year.

Fed actively discussing when to taper. Expect an announcement this fall and the taper to begin in January. Median participant saw two rate hikes by end of 2023 on better economic outlook. Our biggest worry is if inflation and inflation expectations run above the Fed's goal before maximum employment is achieved, causing yields to rise.

Both housing starts and permits miss expectations. Construction still strong, but likely cooling ahead. CEO economic optimism highest since 2018. Import price inflation accelerates.

Maintaining maximum overweight equity allocation with bull market likely to persist in second half. Fed to announce taper later this year. ECB to resume normal pace of asset purchases. Reaffirming our 2021 global growth forecast of 6.1%, with the services sector likely leading the recovery in the second half of the year amid vaccine rollouts and reopenings. Weight of the evidence bullish for European equities.

Airlines have been struggling to outperform since mid-March and we have our travel-related theme on downgrade watch. Concerns for the group include higher debt, higher fuel costs, and lack of highly-profitable business travel. Still, a rising number of passengers, rising airfares, and subdued labor costs provide a path to profitability, and we remain bullish.

Now including the accruals ratio and gross profit/assets factors in the portfolio construction process. Choose stocks based on price momentum, lower accruals ratio, gross profit/assets, operating cash flow yield, and net payout yield. Selected stocks include: BASF, Hennes & Mauritz, Continental, Adecco, Kesko, Ferguson, Next, Entain, Evraz, Kingfisher, Pearson.

Households' stock allocation hits record highs in Q1 according to Fed's financial accounts. Institutions and foreigners, while not at records, are also fairly fully invested. "Big four" households' assets climb $5 trillion to $116.6 trillion and see the "big two" assets versus GDP. Households' "free liquidity" is relatively low versus market value despite the government sending out record stimulus.

Retail sales pull back, amid likely rotation to more services consumption. Industrial production up, but still plagued by shortages. Inventories continue to lag demand. Producer price inflation accelerates. Builder confidence cools, implying some moderation in housing starts.

We enter the second half overweight equities, underweight bonds, and favoring cyclical equity and fixed income sectors. Several macro and fundamental indicators could transition from their most bullish readings in years to bearish in the second half. We outline what to watch for the timing of any defensive repositioning.

Global cyclical stock market trends are consistent with an earlier peak in momentum, but still lean bullish just like in the U.S. The Global Big Mo Tape is also consistent with the 50- and 200-day moving averages of world markets. We have 15 individual global stock markets in charts to allow clients to see the daily picture in key international markets around the world.

Consumer sentiment up. Inflation expectations ease. Cass Freight shipments rebound.

We reaffirm our 2021 global growth forecast of 6.1%, with the services sector likely leading the recovery in the second half of the year amid vaccine rollouts and reopenings. We anticipate a rolling recovery among countries, with the strongest growth likely in Q3. We continue to view the near-term surge in prices as transitory, with the U.S. and some EMs at greater risk for sustained upside.

Since the election, 21-day flows to our Infrastructure ETF portfolio have been positive. During that time, flows had not declined for more than four consecutive weeks - now they're at three-month lows. We remain in the 'will pass' camp - especially after yesterday's bipartisan agreement. The shift in sentiment is likely temporary and healthy - we expect to use additional weakness to overweight the theme.

Employment heats up (pages 1-3). Inflation heats up (pages 4-5). Commodity shortage heats up (page 6).

The Fed announced it will soon begin to unwind its bond ETF holdings. The market reaction was strong when the Fed announced it was buying bonds and ETFs. So far, the reaction to the unwind announcement has been muted. Given the relative size and liquidity of the Fed's ETF holdings it doesn't appear Fed selling should disrupt markets.

In year's second half watch stock/bond composite, Global Balanced Account Model, liquidity and interest rate influences, market's breadth, momentum, and flows. Indicators currently consistent with single-digit correction risk, not double-digit bear market risk. Maintaining maximum overweight equity allocation, underweight bond allocation.

Fastest core inflation since 1992, largely due to goods shortages. But underlying pressures still contained. Jobless claims continue to recede. Consumer comfort little changed.

The Equity REITs industry has bounced back in Q2, and Real Estate has been the top performing sector in the quarter. The sector model has gotten bullish, but our REITs Industry Scorecard remains neutral. We may move to upgrade Real Estate in the coming weeks.

The CLI up for the 13th straight month in May, but pace of growth moderates. Wholesale inventory-to-sales ratio holds at lowest level since 2014. Mortgage applications trend suggests softer home sales growth ahead.

The rise of clean energy, intensified investor focus on carbon reduction, and the 2020 pandemic drastically reduced the size of fossil fuel related energy companies. In the intermediate term, lack of investment may intensify petroleum related supply chain bottlenecks. While it appears like the peak of Big Oil's relevance is in the past, energy tends to experience long, secular trends. This one may be reversing.

Zero interest rate policy makes almost everything look relatively attractive. Otherwise, the market is very overvalued based upon seven different valuation indicators over very long historical periods. Even real yields using forward earnings look very high risk.

The new model applies the NDR 360-degree approach to U.S. stock, bond, and cash benchmarks. The model is overweight stocks and cash and underweight bonds currently. We explain the methodology and introduce the charts and report that update on our website.

NFIB job openings and hiring plans reach record high levels. Economy-wide job openings also hit a new record high. Worker confidence jumps. Trade deficit narrows, but still projected to be a small drag on Q2 GDP growth.

Excess CAPE yields are low, implying low long-term returns. Of the largest four European markets, the U.K. is cheapest on a normalized excess CAPE yield basis. A sustained rise in bond yields with high valuations would signal caution on European equities.

Does "broad-based and inclusive" apply to the taper? Fed could taper $12 billion a month ($8b Treasurys, $4b MBS) starting in January. Expiring terms could create a more dovish Board.

The energy sector, E&P and oil services industries breakout to new highs (VDE, XOP, OIH). Global real estate hits new all-time high (RWO). Positive flows to inflation protection, negative flows from IG and HY corporates (VTIP, LQD, JNK).

ETI implies strong job growth ahead. Used vehicle prices still surging.

Beware of the illusory truth effect. The Fab Five Tape leans bullish, but it had reverted to a neutral reading. Big Mo Tape is neutral, but has peaked and rolled over. The one bearish indicator had been the High-Low Logic Indicator. The indicator I would use for a stop-loss alert is the 200-day moving average.

Widespread improvement in labor conditions, but less than "substantial." Reengagement with the labor force still disappointing. The Fed can take its time with taper, making an announcement later this year.

The global economy continued its strong path to recovery in May, according to the latest global PMIs. Successful vaccine rollouts in most parts of world have unleashed pent-up demand, which has led to a comeback in the services sector, but also higher prices. The U.S. remains the world's growth leader, Europe is roaring back, Chinese growth is steadying, while pockets of the emerging world are experiencing COVID setbacks.