Recent Publications

Economic conditions improve in April in all 50 states. Durable goods orders increase, as factory activity remains positive.

With margin pressure seemingly coming from every angle and pressuring every line item of the income statement, margin compression for most companies looks imminent. In this publication we focus on sales and margin charts, highlighting trends of sales growth deterioration that could lead to significant margin deterioration. Even industries where sales growth has improved such as Defense, Cyber Security, and Managed Care are not immune to margin pressure. We remain vigilant.

Free cash flow/enterprise value and price momentum have had favorable returns with a low correlation. Select companies based on cash position, lower volatility, price momentum, earnings revisions, and free cash flow/enterprise value. Favored stocks include: Microsoft, UnitedHealth, Berkshire Hathaway, Merck, Linde, Nike, CVS, Lowe's, Anthem, Chubb, Regeneron, Progressive.

Consumer sentiment is near a 10-year low. The difference between consumer sentiment and AAII equity allocation is near a record. Pessimism is pervasive, but not as extreme as in February 2022, March 2020, or December 2018.

Both services and manufacturing PMIs fell in May, as growth momentum slowed. New home sales sink in April to a two-year low, as rising mortgage rates and home prices crimp affordability. Richmond Fed regional manufacturing activity shrinks at the fastest pace since the 2020 lockdown.

The stock market has achieved step 1 (oversold) and is attempting step 2 (rally). The market skipped step 3 (retest) in 2018 and 2020, but the Fed was far friendlier than today. Until rallies include broad participation and breadth thrusts, view the market as one going through a bottoming process.

Downgrading high yield to underweight from neutral or marketweight. New indicator developments suggest increased risk for lower quality credit. The change puts us in alignment with our HY/IG Credit Composite. We remain marketweight IG.

The CFNAI for April is consistent with continued growth. Broad-based indicator strength suggests no recession in the near-term.

Utilities trend strength exception among U.S. equity indices. Weakening trends in commodity index, crude oil, and gold. U.S. Dollar Index stands out for strength of uptrend.

Weekly talking points and key visuals from NDR strategists' insights.

April's CPI and PPI for electricity were up 10% and 9% (y-o-y) respectively. Objections to alternative sources like nuclear may soften as prices continue to climb.

Bank lending is seeing some of its fastest growth rates in years. Strong loan demand was confirmed in the latest Senior Loan Officer Survey. This is worrisome because loan growth leads inflation, and is something the Fed can control.

Commodities are supported by monetary and fiscal policy which is contracting at an unprecedented pace. Sentiment for six of 20 commodities is strongly optimistic. However, sentiment for a diversified basket of commodities shows strong pessimism. Gold weakness has led to outflows from precocious metal ETFs while broad based and agricultural commodity funds continue to see inflows.

Margin debt has plunged from $935.9 to $772.9 billion, but it is not yet oversold. P/E valuation has plunged from a record level around 31 to just 19.6 times earnings, but there could be a problem with the "E." Don't fight the Fed as interest service soars, even with the Fed Funds rate below 1%.

The LEI falls in April, led by weaker consumer expectations and building permits. Existing home sales continue to decline, as higher mortgage rates and home prices weigh on affordability and demand. Philly Fed manufacturing activity nearly stalls, while the six-month outlook sours. Initial jobless claims climb to highest level since January. But Manpower employment outlook suggests firmer labor demand in Q3.

Downgrading China's real GDP growth forecast to 4.3%. April data came in the weakest since the first COVID lockdowns in early 2020, led by the consumer. Expect a modest rebound amid gradual reopening of the economy and increased fiscal and monetary support.

Waterfall bottoming is usually a process with frequent shifts in sector leadership. The most recent waterfall declines ending on 12/24/2018 and 3/23/2020 were rare cases with V-shaped recoveries. Along with breadth thrusts, we are watching for our sector model to turn less defensive, our sector bottom spotter indicator to fire, and stability from the FANMAG group as signs a final bottom is in.

Our HY/IG Credit Composite turned negative toward the end of last week. We are considering further credit downgrades. We expect 10-year Treasury yields to retest prior cycle highs around 3.24% and possibly see a modest break of that level. Fed funds will need to go beyond neutral to tame inflation.

Housing starts and permits pull back in April amid rising mortgage rates, construction costs, and declining housing affordability. Architecture billings soften, although demand is still positive across property sectors and regions. Supply chain pressures still elevated, but trend is easing.

Owning an EV has become more compelling. Assuming gas prices remain at current levels, owning an electric over a gas-powered vehicle could represent $8,000 in energy savings.

Operating cash flow yield has been one of the top factors over the last year and over time. Choose stocks based on price momentum, lower volatility, lower accruals ratio, higher earnings revisions, and larger operating cash flow yield. Selected stocks include: Sanofi, Equinor, Deutsche Telekom, Bayer, Compagnie Financiere Richemont, Capgemini, Orange, BHP, BP, British American Tobacco, Glencore.

Earnings growth and beat rates are losing momentum. Positive revisions rate is receding, which tends to lead earnings. Earnings peak is not yet expected, but a slowdown is.

Most of P/E compression has been done compared to the average bear market. Most Nasdaq and small-cap stocks are below their pre-Covid highs. Another down leg would reflect expectations for negative revisions and a hard landing by the Fed.

Retail sales post a solid gain in April, as cheaper gasoline boosts other spending. Industrial production rises more than expected. Capacity utilization tightens. Business inventories jump by the second most since 1982, but are still very low relative to sales. Builder confidence drops to a two-year low, implying weaker housing starts ahead.

Our analysis suggests avoiding non-dividend paying stocks within a European equity portfolio at present. We see potential for high yielding dividend stocks to continue outperforming. Watch economic indicators and yields to switch from high yielding dividend stocks to dividend growing stocks.

Japan has been the clear winner among developed economies, as it continues to pursue its yield curve control strategy. We are downgrading European peripheral debt to underweight from marketweight. EM is a mixed bag but we present some interesting relative opportunities.

Bond funds are outperforming on a relative basis (IEI, SPIB, HYG). Growth, silver, biotechs, and clean energy break down (SCHG, SLV, XBI, XCLN). Largest weekly flow to bond funds in more than a year. Flows to USD and from gold (UUP, GLD).

Empire factory activity swings back into negative territory, as shipments and new orders contract. The six-month outlook for growth in the region remains subdued.

The persistent selling since March 30 has acted like a waterfall decline. The duration is near the average of past waterfalls, but the magnitude of the decline and surge in volume are not. Regardless of waterfall criteria, look for a string of up days and breadth thrusts to indicate a new uptrend is developing.

Broad-based drop in consumer sentiment to lowest level since August 2011, largely due to persistent inflation. But import price inflation eases slightly. A stronger dollar softens some of the inflation pain for consumers.

Weekly talking points and key visuals from NDR strategists' insights.

Macro worries have led to extreme pessimism in both stocks and bonds. Extreme volatility presents buying opportunities during secular bulls. Bottom Watch indicators have started to reach market-bottom levels.

Steel sub-industry performance has lifted our recommended infrastructure ETF PAVE, which has a nearly 10% Steel weighting. Residential construction-related has been a drag but PAVE has still outperformed SPY by 4% YTD.

Fiscal and monetary stimulus is unwinding at a record speed, according to our NDR policy Index. Compared to other countries, U.S. policy support is falling faster, arguing for dollar strength. The winding down of stimulus is consistent with a mature equity cycle. But next year may spell more trouble.

Global central banks are tightening policy at the most aggressive pace since before the Global Financial Crisis. Most of our indicators suggest that this will lead to slower global growth and present headwinds to equities. Nonetheless, this quick tightening follows extreme accommodation and high growth levels, suggesting that the economic damage may not be as pronounced.

The dip in PPI annual inflation confirms the peak in CPI inflation. Initial jobless claims continue to hover near levels consistent with strong labor demand. Government budget deficit on a better path.

Nearly all indicators that we follow show less favorable financial conditions. But credit continues to flow to the real economy. Summary measures of financial conditions are not yet sounding an alarm. That should provide cover for the Fed to keep on its tightening path.

Favorable base effects and mean reversion in some core goods prices help put a tentative peak in core inflation. A stronger dollar, early signs of easing in labor market tightness, and stabilizing inflation expectations suggest core inflation should continue to moderate. Supply chains are a risk to the outlook. But tighter Fed policy and a shift in consumer demand to services favor softer inflation ahead.

Both headline and core CPI annual inflation rates ease in April, but come in stronger than consensus. Core goods prices moderate, while core services prices keep moving up.

In this publication, we take a look at what has happened after other 50% declines for Bitcoin and look at price indicators that may give us clues for a turnaround in performance.

Passively managed equity assets have consistently gained ground on active assets since the late 1990s, with 2020 marking the first year where passive assets surpassed active. ETF sector fund flows provide good sentiment gauges for the stock market and underlying leadership. Recent trends indicate extreme investor pessimism for the S&P 500 and for several, mostly cyclical, sectors.

The Fab Five Sentiment Component has risen back to 2022 highs. DAVIS265 remains in its most pessimistic mode, but above the lows reached in February. The slower moving Crowd Sentiment Poll has fallen below its March low to levels last seen during in April 2020. Elevated valuations provide some offset to the pessimistic messages.

Large-cap Growth/Value ratios have broken multi-year support and are close to meeting the criteria for a secular bear market. The 1972-1978, 1991-1993, and 2000-2007 Growth secular bears offer guideposts for how another bear could unfold. Financials may be the key to determining the duration and size of a Growth bear.

NFIB outlook for business conditions drops to a new record low. But OECD U.S. CLI picks up, suggesting that economic activity is improving.

Strong first quarter earnings and a robust April PMI print have failed to lift European equities. Net income margins reached an all-time high at end of 2021 and most likely have peaked. Downgrades to earnings forecasts as the economic outlook deteriorates is likely to continue to weigh on equities.

Downgrading high yield to neutral or marketweight. External indicators weakening, led by vol and liquidity. Poor breadth and lower quality performance leading to technical troubles.

TI implies slower, but still robust, pace of payrolls growth ahead. Wholesale inventories up, but I/S ratio still low, which suggests continued supply/demand imbalance.

Sell in May has not worked in the last 10 years. The dominance of ETFs could explain why. Whether sell in May applies in 2022 likely depends on the Fed.

Weekly talking points and key visuals from NDR strategists' insights.

Broad-based payroll gains in April, although wage growth may have peaked. Household survey notably weaker, with a drop in employed and labor participation, keeping the jobs market tight. Used vehicle prices continue to moderate.

Shifting from bullish to neutral on gold and from neutral to bullish on the dollar. Gold downgrade responds to weakening trend, declining Gold Watch aggregate, rising expected real yields and weakening commodity trend. Dollar upgrade responds to strengthening trend, increased confirmation, rate differential prospects and metals downturn.

The Dow Jones Industrial Average (DJIA) outperformed the S&P 500 by 4.2% in April. There have only been eight cases in the post-World War time frame where the 21-day return of the DJIA / SP500 ratio exceeded 4%.

A very low unemployment rate - showing a hot labor market - has not always been so hot for stocks. Both job openings and the quit rate are at record highs, suggesting a hot labor market. On the other side, "unsustainably hot" is not sustainable when the Fed is tightening. Moreover, temporary jobs and NFIB small business hiring plans suggest job gains could slow.

Global growth slowed to a 22-month low in April, according to the latest global PMIs. Taking China out of the equation presents a much more constructive view of the world. But the intermediate trend continues to be consistent with slower global growth as prices surge and stimulus unwinds.

Steepest productivity drop since 1947. ULC surge raises the risk of a wage-price spiral and stagflation. Layoff trends suggest some easing in labor market conditions in April.

Communication Services, Consumer Discretionary, and Technology led April's selloff, all with double-digit negative returns. The combination of rising rates and weakening fundamentals has soured investors on big tech for now. Energy sector and crude technicals both saw signs of deterioration during the month and we could reduce exposure in the coming weeks.

Fed will keep hiking rates until it gets to neutral. Will commence balance sheet reduction in June. Powell presented a more cautious approach to raising rates beyond neutral and nixed a 75 bp hike. We discuss various factors that will determine how far the Fed will go.

Both the ISM and S&P Global U.S. Services PMIs fell in April, consistent with continued but slower growth in services activity. ADP private payrolls rose by the smallest amount in this expansion, largely due to labor shortages. Light vehicle sales rose in April, but level still significantly below pre-pandemic. Trade deficit widened in March to a new record, confirming the drag on Q1 GDP growth.

We analyze 12 sub-cycles and the overall cycle. Real GDP contracted in Q1, as the trade deficit widened to a new record. But private domestic demand strengthened, led by solid consumer spending and capex growth. Soaring inflation and the Russia/Ukraine war weighed on growth.

Once again commodity-related themes outperformed including Agriculture, Natural Resources, MLPs, and Gold & Silver Miners. It was a particularly harsh month for Blockchain, FinTech, Metaverse, and Hydrogen themes, all of which declined more than 17%. Sentiment for thematic funds may be so bad that it is starting to look like capitulation.

AAII sentiment and put/call ratios are showing the most pessimistic readings in years. Other sentiment gauges are less extreme, keeping DAVIS265 above previous lows. Watch for reversals in extreme pessimism for a short-term rally.

Job openings exceed the number of job seekers by a record amount, as labor market continues to tighten. It solidifies expectations for an aggressive Fed hike tomorrow. Factory orders jump, beating the consensus.

Loss of momentum and weak breadth suggests European equities could struggle to make gains over the next few months. While survey sentiment is excessively bearish, market measures of sentiment suggest investors have not capitulated yet. Economic surprises suggest economists may have become overly pessimistic.

Shifting 5% from stocks to bonds, now underweight stocks, overweight cash, and marketweight bonds in U.S. asset allocation. The shift reflects model deterioration due to technicals, earnings momentum, and a hawkish Fed. The S&P 500 is off to its worst start since 1939, but the market usually rallies in the second half after a weak first four months.

Inflation is running well above any reasonable measure of flexible average inflation targeting. Taylor rule formulations argue for a 7% or 8% fed funds rate. Regardless of the measure, the Fed has a lot of work to do to bring inflation back down toward trend.

Top-level model equity allocation fell to 72%. Highest allocations are with Cash, U.S. Large Caps, and U.S. Value. The Global Equity Market participation indicator is now bearish on equities.

The ISM Manufacturing PMI fell in April, but the S&P Global U.S. Manufacturing PMI ticked up. Both PMIs are off their highs earlier in this cycle, consistent with slower growth, but no recession at this time. Construction spending near-flat in March, but y/y pace still strong.

High-low Logic Index shows the market out of gear (bad breadth). Bullish and bearish scenarios for a market in gear. Big Mo Tape falls to its most bearish mode.

Real DPI fell in March. Real spending held up, led by services. Core PCE inflation edged down modestly. Consumer sentiment improved in April on lower gasoline prices. Compensation costs soared in Q1, as the labor market continued to tighten. Regional factory activity mixed, but consistent with continued expansion.

Total Q1 cloud segment revenue grew 33% Y/Y for Amazon, Microsoft, and Alphabet, collectively, in line with CY 2021's 34% growth. However, overall revenue for the "Big 3" only grew 14% in Q1.

Weekly talking points and key visuals from NDR strategists' insights.

Stocks do not usually suffer major bear markets when the economy is not headed into recession. Thus far, most leading indicators continue to show the economy is still rising. The ISM PMIs and economic surprises also still fairly solid. But inflation and interest rates remain a problem for stocks. And soft surveys of sentiment also warn of a slowdown in growth.

Month-to-date, there have been large outflows from Financial (XLF), Nasdaq 100 (QQQ) and Treasury TIPs (TIP). The iShares 20+ Year Treasury Bond (TLT) stood out for three reasons: it is up 8% since April 19, the $760M inflow month-to-date follows a record monthly inflow for March, and it is reversing from more than 2 std dev oversold. Tempering our enthusiasm for a large TLT rebound is the Fed tightening cycle.

The yen has depreciated at a massive speed and there is little evidence of a reversal, as the BoJ remains dovish. The weak yen is a double-edged sword for the economy, but usually positive for equities. The economy is showing nascent signs of improvement, but COVID zero in China presents downside risks.

Net exports, inventory investment, and government spending took a big bite out of Q1 growth. But consumer spending, capex, and residential investment rose, pushing off a recession call. Jobless claims fell, reflecting a very tight labor market, also inconsistent with recession.

The Value over Growth sector leadership trends in April look like a continuation of the broad leadership trends from Q1. But under the surface, sectors have been jockeying for position. We highlight April model and indicator developments, and five position changes we are considering.

We view the recent re-steepening of the curve as a short covering rally. All of our models remain in flattening mode. Tightening cycles are associated with flatter curves. Yield curve breadth can be helpful in deciding when to make a recession call.

For this month's Ten Most Interesting charts, we selected ETFs by their proximity to their 21-day high: five closest to the high and five furthest from the high. Recent volatility may be setting up opportunities in themes like Agribusiness, Global Infrastructure, and Cloud Computing. Previously popular themes like Batteries, EVs, and Clean Energy are best avoided for the time being.

Steady homeownership rate in Q1. But sliding housing vacancy rate highlights persistent shortage. Rising mortgage rates weigh on mortgage applications and pending home sales. Advance goods trade deficit balloons to a new record. Expected to be a drag on Q1 GDP growth.

Free cash flow/enterprise value has been the top-performing factor over time. Select companies based on cash position, lower volatility, price momentum, earnings revisions, and free cash flow/enterprise value. Favored stocks include: Apple, Microsoft, Alphabet, UnitedHealth, Cisco, Accenture, Nike, CVS, Anthem, Regeneron, Vertex, Progressive.

DAVIS265 gave a severe oversold reading on January 24, 2022. The historical record of this indicator suggests it is often followed by rallies lasting months. That DAVIS265 pessimism was even before the crisis event of the Russian invasion. Crisis events generally see a short-term selling panic and then a good rally. However, cyclical valuation and sentiment indicators still warn of longer-term risks.

Short-term breadth has been the worst in nearly two years. Big drawdowns after breadth thrust signals have coincided with weaker returns up to four months later But returns six and 12 months later have been similar to the average returns after breadth thrust signals.

Consumer confidence slipped in April, but level still consistent with continued expansion. New home sales pull back. Home prices still surging. Durable goods orders increase, a positive sign for capex. Richmond Fed activity broadly positive.

Small-caps have underperformed larger-caps since September last year. However, there are some signs that the worst could be over, while the secular case for Small-Caps remains in-tact. Our European Small-Cap watch report suggests waiting for indicators to improve before becoming bullish.

Focus on the terminal inflation rate. We're skeptical that inflation will get back down to the Fed's target in the intermediate term. Markets still have faith in the Fed. Inflation expectations remain well-anchored. Markets can reprice quickly if they lose that confidence.

The CFNAI ticked down in March. But the three-month trend and indicator breadth suggest no recession in the near-term.

Breadth thrust buy and long-term trend are both hopeful. But the Fab Five Trend Model remains neutral - often a sign of a trading range market. Cyclical composites like Big Mo and the Fab Five Composite remain cautious.

Services growth momentum slowed in April, but manufacturing picked up. Price pressures showed no signs of easing.

Weekly talking points and key visuals from NDR strategists' insights.

With lack of bullish breakout or bearish breakdown, we remain marketweight on global equities. Bullish and bearish scenarios driven by sentiment surrounding inflation numbers, expectations for future inflation and the prospects for tightening monetary policy. Market's direction to be reflected by global market breadth. Also watch correlations.

While fellow Tech Titans Microsoft ($280), Alphabet ($2500), and NVIDIA ($210) are not likely to have the negative surprise NFLX did, they are similarly testing key support levels.

Most central banks are now raising interest rates, and this is not good for world stocks and later for global growth prospects. Interest rate risks have risen in the U.S. as well. Inflation remains a problem, particularly versus wages. There may not be enough liquidity for financial assets.

Our Recession Watch Report and other leading indicators point to continued expansion this year, although growth is slowing from the unsustainably strong momentum last year. End of fiscal stimulus, aggressive Fed tightening, aggravated supply issues, and high inflation all suggest slower growth. Watch the unemployment rate and the pace of housing market cool-off for when to turn more bearish on the economic outlook.

LEI increases in line with expectations. Indicates the economy is on track for somewhat slower growth. Philly Fed factory activity moderates. Optimism wanes. Jobless claims continue to show tight labor market conditions.

We are reducing our 2022 global real GDP growth forecast to 3.4% from our prior estimate of 4.3%. The pandemic, high inflation, supply chain hurdles, waning stimulus, and rising geopolitical risk make a strong case for a sustained global slowdown, a condition associated with weak equity market performance. However, the case for a severe global recession remains low for now.

Rising rates have led to lower excess CAPE yields for the S&P 500 and for sectors, suggesting more moderate returns going forward. Our Excess CAPE Yield Model continues to favor Technology, Health Care, and Consumer Discretionary. Valuation metrics can help set long-term return expectations but have not work well as timing tools, and we will wait for model confirmation before making any position changes.

Fundamentally, there are few signs of recession and inflation could remain more than double the Fed's target, keeping the Fed on its tightening path. Bonds may have trouble attracting buyers, as demand from the Fed, banks, and households disappears. We side more with the bearish case than the bullish one over the longer term.

Existing home sales fell in March to the lowest level since June 2020. Home sales and mortgage applications were hit by rising mortgage rates. But broad economic conditions still improved across all 50 states, reducing the odds of recession.

In this publication we take a look at the "average path to recession" and five indicators to watch for signs of a recession coming.

Adding price momentum to the recommended factor list. Choose stocks based on price momentum, lower volatility, lower accruals ratio, higher earnings revisions, and larger operating cash flow yield. Selected stocks include: TotalEnergies, Equinor, Deutsche Telekom, Air Liquide, Bayer, Vinci, Capgemini, Orange, Swisscom, BHP Group, British American Tobacco, BP, Glencore, Anglo American, Vodafone

Financial assets look like they are in a bubble compared to income. This is confirmed by longer-term price/earnings and price/sales ratios. AAII sentiment remains pessimistic, and the Crowd Sentiment Poll usually goes to excessive optimism after extreme pessimism.

Equity leadership in 2022 has been closer to late cycle than early cycle. Many inconsistencies can be traced to macro cross currents. The S&P 500 is unlikely to break out of its trading range without decisive leadership themes.

Construction activity in March hit highest level since mid-2006. Multifamily construction jumped, while single-family softened.

Fundamentally, peak inflation combined with slower growth could allow the Fed to slow, or even pause, its tightening cycle. Valuations have improved with longer-dated TIPS yields now positive. Technically, the bond market is extremely oversold and pessimism is high.

Broad commodities hit 10-year high and intermediate bonds testing COVID low (DBC, BIV). Flows into late expansion and defensive sectors (Energy, Real Estate, Staples, Utilities, Health Care) but also Tech. Flows into commodity funds (DBC, DBA). Price and flows diverge on UNG.

A fourth consecutive decline in the HMI suggests a likely pullback in housing starts in the near-term. Industrial production strengthens, led by vehicles output. Empire manufacturing activity rebounds, but optimism wanes.

DAVIS265 again gets to oversold. But new lows and Leading Indicator Model refuse to verify the two breadth thrust buy signals. Looking at the ten components of the Leading Indicator Model.

Retail sales meet expectations in March. But higher gasoline prices hobble other purchases. Consumer sentiment rebounds in April, driven by brighter expectations for the near-term outlook and a pause in inflation expectations. Jobless claims rise to a five-week high, but labor market still extremely tight. Import price inflation still surging, led by higher fuel and other industrial commodity prices. Business I/S ratio continues to show shortages across the inventory pipeline.

Weekly talking points and key visuals from NDR strategists' insights.

Dollar Index supported by nominal rate differentials and longer-term composite models, but dollar optimism excessive, short-term model on sell signal, and real interest rate differentials remain negative. Confirmation lacking from the trade-weighted index, equal-weighted index, and emerging market currency trends. Gold advance inconsistent with a strengthening dollar. We remain bullish on gold and neutral on the dollar.

The Invesco S&P 500 High Dividend Low Volatility ETF has the best year-to-date performance of the 17 smart-beta funds we track. SPHD's defensive tilt, a SHUT Index breakout, the economic cycle, and seasonality should continue to benefit the fund. Tactical allocators can watch correlation to SPY, intermediate term mean reversion, and seasonality for profit taking decisions.

We like to look at the Russell 2000 Growth index trend as a proxy for thematic investing appetite since many thematic funds hold small-cap Growth companies.

We introduce the NDR Global Supply Chain Monitor which allows clients to gauge the latest developments in supply chain data at both the global aggregate and regional level. Global supply chain pressures remain near all-time highs. However, there are some tentative signs that the worst may be behind us. The Russia/Ukraine war and zero-COVID in China have so far adversely impacted the indicators modestly.

I believe that a strong national defense includes not being dependent on other countries for nearly everything. The strong U.S. dollar doesn't help. However, demand should be curtailed going forward, as real disposable personal income has fallen. Wholesale inventories hit record levels and may start to represent a potential glut.

The Japanese bond market is at risk of a policy shift, as rising yields elsewhere puts pressure on the yen. But inflation is expected to remain well below target. Japan has been a safe haven for global bond investors. We maintain our overweight for now.

Our defensive SHUT Index bounced back in Q1 and has broken out in April. A weak start to the year for stocks has aided the defensive leadership, but several cycles suggest the leadership could persist. Drawdowns from cyclical Growth sectors from the S&P 500's January 3 peak are most in line with their echo bear averages, suggesting downside risk could be limited.

PPI surprises on the upside, amid surging energy prices. Pipeline pressures remain elevated. Freight costs hover near record highs. Mortgage applications mixed, as mortgage rates top 5.0%. Federal budget deficit shrinks amid a strong economic recovery.

By year-end we expect CPI growth to slow, Y/Y earnings growth to bottom, and mid-terms will be over, giving hope for a return to risk-on. The current risk-off environment is creating buying opportunities within themes we like such as Clean Energy and Genomics, however, we likely need risk-on to return to reverse relative strength downtrends.

DAVIS29 and DAVIS159 come from the GDP report on listed and unlisted companies, and they show very high valuations at the end of 2021. The outlook for profits is seen by most observers as still strong, but there are some signs that the growth rate could slow. A strong U.S. dollar is slightly above 100 and short-term overbought.

Rising inflation is taking a toll on consumer sentiment and real consumer spending. Fed tightening will weigh on interest-rate sensitive purchases, such as housing and autos, and will raise the debt service burden. But consumers still benefit from a strong labor market and a significant cushion in savings. Expect the rotation from goods to services spending to continue.

Beat rates and the direction of consensus estimates are returning to pre-pandemic tendencies. S&P 500 earnings growth should slow at the fastest pace since 2011. Watch inflation versus wages, interest expense, and buybacks.

Higher energy, food, and shelter prices drive headline CPI to highest in over 40 years. Decline in used vehicle prices and smaller gains in other core components suggest inflation is peaking. Small business optimism sinks to lowest level in this expansion. Implies slower growth ahead.

Despite the recent equity rally, Defensive sectors have still performed well. Indicators continue to suggest a moderate tilt to Defensive sectors. We continue to favour Cyclical Value over Cyclical Growth sectors.

Munis have underperformed Treasurys this year, with long-term yields now higher than comparable Treasurys on a pre-tax basis. Investors in the top tax bracket can earn higher after-tax yields than similarly rated corporate bonds across all maturities. Although yields may continue to rise, taxable investors looking for good relative opportunities should strongly consider munis.

Steady CLI in March suggests close-to-trend growth in the near-term.

New lows have not dried up on the NYSE, leaving the market on December sell signal. The NDR cycle composite for DJIA turns down in April. Longer-term Real DJIA total return is still extended.

Weekly talking points and key visuals from NDR strategists' insights.

Housing affordability drops to lowest level since 2008 due to surging home prices and higher mortgage rates. Wholesale inventories jump by the second most ever. But I/S ratio still shows shortages.

After recently breaking out from a roughly eight month trading range, the VanEck Rare Earth Metals ETF (REMX) looks to be setting up for a retest of the top of that range. A divergence of price and breadth can be an early sign of a weakening trend. So far, this breakout has failed to push breadth above 68% - could this be the end of the trend as we know it?

DAVIS248 shows that it usually takes at least three hikes for interest rates to bite the stock market. DAVIS194A shows that credit conditions are still very loose. But there are some signs that liquidity is drying up and other things to watch.

Increasing allocation to U.S., Japan and Pacific ex. Japan; reducing allocation to Europe ex. U.K. and Emerging Markets. Responding to Global Regional Equity Model. Global Balanced Account Model more in line with our recommended allocation. Rise of Stock/Bond Composite consistent with U.S. composite rise, EM composite decline.

Near record low jobless claims, as labor market continues to tighten. A decline in used car prices suggests a peak in CPI inflation in the near-term. Rising mortgage rates weigh on application volume.

Global growth slowed but remained firmly positive in March, according to the latest global PMIs. The impact of the Russia/Ukraine war has become evident in prices and supply chains, adding to the risks before the conflict. COVID caused China to slump, but growth picked up in the U.S. and Japan, and remained resilient in Europe.

Increasing duration by 5% to 90%. Increasing U.K. to overweight, decreasing Europe to marketweight. Market pricing in higher longer-term yields on a faster balance sheet reduction. Bond market is oversold, sentiment is pessimistic, and technicals show divergences.

Blockchain, Mobile Payments, Cloud, Big Data, Scarce Resources, Cannabis and Travel all rallied more than 15% off the March 8 low. Did March start a trend reversal or was it an oversold rally? We think there could be more pain near-term but are more optimistic for late 2H 2022. The best year-to-date trends can be seen in Uranium, Scarce Resources, Environmental Services, Agricultural, and Infrastructure.

All sectors other than Financials had positive returns in March, led by Utilities, Energy, and Real Estate. Since the S&P 500's March 8 bottom, Growth sectors have led the market's move higher. The turnaround in Growth-sector performance has been driven by the sectors' largest stocks, with all FANMAG constituents outperforming the S&P 500 since March 8.

S0790 is my version of the Fed Model, but with moving brackets. It compares stock earnings yields with an interest rate composite. Watch! DAVIS100 and S661A tell me stocks are overvalued versus earnings. DAVIS208 and S702A confirm that stocks are very extended versus sales and the economy. Margin debt remains on a sell signal, and ETF inflows look overbought.

Breadth improvement since mid-March has slowed, especially in small-caps. Models are less negative on stocks relative to bonds and Growth relative to Value. We remain neutral on U.S. stocks on absolute and relative basis, favor cash over bonds, are neutral on Growth/Value, and favor large over small.

Both ISM and S&P Global Services PMIs advance in March. Demand strengthens. Price pressures keep rising. State coincident indexes show broad-based expansion and minimal odds of recession. Commercial real estate conditions continue to improve. Trade deficit steady at a record level.

Breadth thrusts following an extreme in investor pessimism signal further upside in the near-term. Watch intermediate breadth and narrowing credit spreads for indication of a longer-term rally. Deterioration in economic and earnings indicators present challenges.

Inverted Treasury curve not confirmed by TIPS curve or German curve, casting doubt on 2022 recession risk. Broad-based credit indicators remain supportive for growth. High yield and leveraged loans continue to outperform. We remain overweight.

Lack of inventory and high prices weigh on vehicle sales in March. Labor market trends point to continued payrolls growth. Factory orders decline, but y/y momentum still strong.

Miners and commodity related countries break out (GDX, REMX, EWZ). Bonds and rate sensitive industries continue to break down (IEI, IYG, ITB, IHB). Flows to commodities and Materials sector, flows from Financials and Real Estate.

S45 and S45A gave breadth thrust buy signals on 3/18/2022, and they are off to a great start. Big Mo Tape continues to improve, but it has not yet signaled a "thrust." Crude oil is finally in line with long-term upward trendline, but at $130 it was overbought.

Ex commodities, Q1 was the worst quarter across assets since Q3 1981. Commodities posted their best quarter on record while bonds had worst in 41 years. Resource-based countries, sectors, and styles outperformed, but Growth rebounded in late March.

Robust jobs growth amid tight labor markets should set up a 50 bp rate hike at the May FOMC meeting. Greater labor force participation by prime-age women, as Omicron wave fades. Manufacturing PMIs consistent with continued economic expansion.

Weekly talking points and key visuals from NDR strategists' insights.

We see more regulation like that forthcoming from the EU as the key to greater adoption and a higher BTC price. Bitcoin is now testing its $44.5k breakout level and a successful test should clear the way for a Bitcoin upgrade.

The Leading/Coincident Indicator says the expansion continues. The OECD G7 leading indicator is bullish as well, but it looks like it could peak this summer. But our Real Monetary/Fiscal and Exchange Rate Policy Index is falling off a cliff. I am watching commodity prices and government net interest payments for clues on the future.

We reaffirm our 2022 growth forecast of 5-5.5%, but rising risks indicate that growth is likely to be closer to the lower end of the range, with further risks to the downside. Zero-COVID is biggest near-term risk, while Russia/Ukraine crisis may have more long-term implications. Targeted stimulus will support growth this year.

As uptrend has strengthened with more indicator confirmation, sentiment and valuations have yet to threaten. During next earnings season, watch trailing and forward earnings growth, rates of positive revisions, beat rates and spreads between earnings yields and bond yields, which have been widest in Europe and Japan. As stock/bond ratio has returned to records, spread between stock and bond flows reaching new highs.

Our Emerging Market mean-reversion breadth indicator is reversing from levels that have historically identified bottoms for Emerging Markets. Emerging Market countries occupy the top and bottom spots on our Exchange Traded Fund Global Market Momentum ranks (ETF_301). This quarter's return dispersion for ETF_301 is likely to be the largest in the last decade.

Real income and spending decline in February, as prices keep rising. PCE inflation hits highest level since 1982. Layoffs remain low, reflecting strong labor demand. Mixed-to-stronger regional factory activity in March. Suggests an uptick in the ISM Manufacturing Index.

Cyclical Growth sectors have been top performers since the March 8 market low. After being treated as a safe-haven assets in the initial days of COVID, FANMAG stocks look to be regaining their risk-on characteristic. Earnings outlook and stock splits could provide intermediate-term support for cyclical Growth sectors.

We're looking for a balance sheet normalization program lasting three years to be announced at the May FOMC meeting. We're expecting monthly caps with a maximum reduction of $80 billion per month. Three conditions could result in an early exit from the program.

More than a year on from the peak in high growth themes, FinTech's downtrend may be bottoming. We'll be watching fund flows and relative strength trend for confirmation. The Natural Resource theme has benefited from rising commodity prices and falling bond prices. Flows are confirming price action, though both bear observation for signs excessive optimism.

ADP payrolls increase more than expected in March. Widespread gains across industries and firm sizes. Corporate profits up slightly in Q4. Real GDP revised down on softer consumer spending and capex. CFO optimism declines on worries about inflation, labor market concerns, and geopolitical risk. State coincident indexes show broad-based growth in early 2022 and minimal risk of recession.

Median home prices are at all-time record highs versus income, showing high valuations on homes. NAHB homebuilders survey shows confidence is still very elevated, but making a lower high. DAVIS265 and advisory service sentiment featured extreme pessimism, which showed stocks were very oversold. But real earnings yields have never been lower, which is a valuation/inflation offset longer-term to the pessimism.

Midterm years have been the weakest of the four-year cycle. Weakness tends to be more pronounced in the first half of midterm years, especially under first-term Democrats. Monetary and fiscal tightening is common in midterm years, and year/year tightening is at a record high in 2022.