Recent Publications

Although nonfarm payrolls rose a disappointing 210,000 in November, the labor market is tightening fast. The unemployment rate dropped to 4.2%, down a record 1.6 ppt since June, excluding 2020. This provides enough cover for the Fed to accelerate the taper and could set up a rate hike next summer. In other reports, services activity surged, factory orders rose, but vehicle sales fell.

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

Upgrading Europe ex. U.K. to overweight. Downgrading Japan to marketweight. Global equities recovering from oversold condition, supported by seasonal tendencies. Shifting exposure from Japan to Europe ex. U.K., consistent with regional allocation model and ACWI Scorecard. Reallocation also supported by sentiment considerations.

In April 2020, we noted a record high in the unemployment rate was bullish for stocks. But in spring of 2021, I said our indicators on the unemployment rate projected near 4% by the end of 2021. This morning's unemployment rate of 4.2% is not good news for stocks.

When Facebook announced it's changing its name to Meta, the Roundhill Ball Metaverse ETF (META) saw a surge of inflows, gaining $734 million in the 31 days after the announcement.

Shortage of goods - "at what price?" Imports have record boom - inventories also boom. The sales/inventory ratio near record highs is not necessarily bullish for stocks.

While little is known of the Omicron variant, past COVID waves suggest it could slow, but not derail, global growth. The bad news is it could delay normalization in global supply chains and inflation. As with most of the COVID waves we've observed this year, our focus returns to high-frequency data to get an early read on the impact of the virus.

Sector leadership has been more COVID-leader oriented since the emergence of Omicron. Crude finished the month down roughly 20% on concerns that renewed travel and mobility restrictions could lead to lower demand. Yields fell and the yield curve flattened during the month. We put Financials on watch for a downgrade.

Downward trends in jobless claims and layoff announcements point to tightening labor market conditions. Consumer comfort pulls back.

We use our ETM and ITM to define four economic scenarios. Bonds performed well in disinflationary environments, regardless of the growth rate of the economy. Conversely, bonds performed poorly in inflationary environments. Stocks liked strong growth and low inflation but lost ground during stagflationary periods. Bonds performed well after our Stagflation Index peaked.

ISM and Markit PMIs give mixed signals on factory activity, but both show growth remains above trend. ADP payrolls increase more than consensus, setting up expectations for a strong November Employment Report on Friday. Construction spending up modestly.

We typically focus on thematic ETFs breaking out but in this edition we look at thematic trend break downs. Trends in FinTech, Health Care Innovation, and Leisure & Entertainment have been particularly concerning.

S&P 500 price/sales and price/earnings look stretched. Advisory service sentiment and a $31.6 trillion fund survey look high risk. Cash relative to assets look low. I put the saving rate and margin debt into perspective.

Friday's decline did not push markets to deeply oversold or extremely pessimistic levels. If Omicron news is positive and long-term breadth remains healthy, it could set the stage for a year-end rally. If inflation forces the Fed to strike a more hawkish tone, it could have negative consequences into 2022 regardless of Omicron's impact.

Lower confidence drives down consumer purchasing plans. Inflation expectations soar. Regional factory activity mixed. Existing home price growth moderates slightly.

Implementing a curve flattener trade. Models and momentum argue for a flatter curve. Rate hikes, slower growth, and weaker inflation support a flatter curve.

Top-level model fell to 58% stock allocation. Highest allocations are with U.S. Large Caps, U.S. Growth, and Cash. Although the PMI indicator improved to favoring stocks, global measures of equity market breadth and economic momentum now support bonds.

Pending home sales show strong housing demand in the near-term. Texas factory activity mixed, but outlook strengthens.

Little Mo gave a sell signal on 11/22/2021, closing out buy signal from 10/5/2021. One day after the Nasdaq hit an all-time high, we had 213 new highs versus 554 new lows. However, Big Mo Tape remains mildly bullish.

December and January are two of the best three months, by average return, for the Invesco Solar ETF.

The Leading/Coincident Index is still on an April buy signal, and October hard data was booming, showing a pickup in growth. But some of this "heat" is inflation. The NFIB sentiment index from their small business survey falls into a negative zone for the economy. This survey is confirmed by another from the University of Michigan on consumer sentiment. Hard data often follows soft (sentiment) data.

An unorthodox response to inflation pushed the Lira to the most oversold EM currency we track. Favorable seasonality and a potential boost from currency mean-reversion may set up TUR as an interesting trade. A well-established relative downtrend and an economy struggling with high inflation argue against long-term allocations.

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

Highest PCE price inflation since 1990 erodes income growth. But consumer spending charges ahead. Consumer sentiment improves from mid-November, but still shows consumers worried about inflation. Initial jobless claims drop to lowest level since 1969. New home sales up slightly. Low inventory keeps pushing prices up. Durable goods orders decline, largely due to aircraft. Y/Y momentum still shows strong capex demand. The economic expansion broadens across states. Q3 real GDP revised up. Profits increase.

Unusually long stretch without double-digit decline and spiking VIX. Stock optimism has risen while bond optimism has dropped during bond yield advance. Watch growth-adjusted relative valuation, liquidity, yield curve, and relative performance of defensives and risk-off proxies.

In the second half of 2020, renewable energy, decentralized finance, and electric vehicles posted eye-popping gains. 2021 has been a year of consolidation for those themes while their "disrupted" counterpart industries (fossil fuel energy, traditional finance, and OEM auto-manufacturers) have outperformed. We highlight these three relationships and the rise of automation as a sneak preview of what we're watching for 2022.

FCV/EV has been the top-performing factor 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: Apple, UnitedHealth, Oracle, Thermo Fisher, Cisco, Lowe's, Charles Schwab, Applied Materials, Target, S&P Global.

A risk to the outlook associated with the supply chain problems that many are overlooking is the bullwhip effect. So far, the risk remains subdued as new orders continue to outpace inventories. But if aggregate demand slows markedly or if consumers switch preferences, businesses may be left with more than they need.

Most valuation indicators suggest irrational exuberance despite the surge in earnings. This is confirmed by record low cash at brokers relative to margin debt. Fund flows remain "overbought." But foreigners dump stocks, and the Michigan sentiment survey on the economy is very pessimistic.

Short-term breadth measures have weakened quickly. Long-term breadth remains positive. Worsening technicals need to be monitored in the face of less favorable inflation, Fed, and earnings backdrops.

Upgrading Consumer Discretionary to overweight and Materials to marketweight, downgrading Utilities and Real Estate to marketweight. The moves reflect the rising U.S. COVID case count and get us more in line with the sector model. The outlook for Financials has worsened, but we give the sector the benefit of the doubt for now.

Strong high-tech capex growth and increased digitization across industries should spur faster productivity and potential output growth in the intermediate term. Productivity is closely related to profits and margins and is currently growing across most industries. ULC growth is mixed by industry, but expected to moderate, leaving room for the Fed to gradually normalize policy.

Services PMI off slightly in November. But Manufacturing PMI picks up. Inflation pressures persist. Richmond Fed activity near steady.

Despite weakening economic indicators, our Europe equity/bond composite still favors a broad tactical tilt to cyclical sectors. The recent pull back in yields has benefitted European cyclical growth over cyclical value sectors. Within European defensive sectors we favor Consumer Staples and Health Care to Communication Services and Utilities.

Maximum employment is squishy and subjective. The pool of available labor is objective and should shrink to around 11 million people based on the past two cycles. That could occur in Q2 or Q3 of 2022, setting up a summer rate hike. Our Fed Rate Hike Watch Report can help monitor broad-based and inclusive employment.

Existing home sales post an eight-month high. Tight inventories continue to feed into high home price growth. CFNAI shows stronger economic growth in early Q4. CRE sentiment cools slightly.

The Fab Five Tape and Big Mo Tape remain bullish. The NYSE Daily A/D Line barely confirmed the new highs in the market in November, but daily new highs have not - weekly highs and lows still show a lot of new lows, which is a concern. We got an intermediate-term breadth "overbought" sell signal.

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

Early data is confirming signs of the COVID pandemic's negative effect on labor force participation, life expectancy, birth rates, and migration. While there is still room for a cyclical recovery in some of these trends, the pandemic will likely inflict long-term damage. Holding all else constant, this will have negative implications on potential real GDP growth.

We continue to hear the argument that Big Tech is in trouble in an inflationary environment because it is a long-duration asset. Recent performance shows otherwise.

A strong rise in the average PMI suggests growth is picking up in Q4, following sluggish growth in Q3. Inflation is running very hot, but with weekly earnings less than CPI inflation, where is the demand for real growth going to come from going forward? Some people question the value of college education, but nearly 74% of all financial assets are owned by college grads, with progressively less wealth going to those with lower levels of education.

Watching trailing earnings relative to forward earnings growth, beat rate momentum, revisions, and earnings yields. Also watching spreads between earnings yields and bond yields, and correlations between yields and equities. Moving to neutral on rising U.S. dollar but not expecting a break of 2020 high.

LEI surprises on the upside in October. Points to above-trend growth in the near-term. Philly Fed factory activity strengthens. New orders jump, but so do backlogs and price pressures. Jobless claims continue to grind lower. Consumer comfort up. E-commerce sales pull back, but market share holds well above pre-pandemic level.

The 15% minimum tax would meaningfully raise the effective tax rates for all sectors. The overall impact of the 1% buyback tax would be more modest. Technology could be among the hardest hit by both taxes.

Negative real yields have supported equity valuations, particularly for growth stocks. Falling real yields are associated with equity outperformance, whereas rising real yields have seen underperformance. Tech stocks have closely mimicked trends in real yields since 2019.

The longer Bitcoin goes without breaking back above its April 15 price level, the more we worry about a failed breakout. We are also worried that Bitcoin is entering a seasonally weak "pre-halving" period. Still, the bull case for continued adoption of Bitcoin as an asset in a diversified portfolio remains intact.

Housing starts fall to a six-month low. But stronger permits and builder confidence suggest a rebound in the near-term. Architecture billings moderate. Pace still positive for nonresidential construction spending growth in 1H 2022. Mortgage applications mixed.

The operating cash flow yield factor strategy has produced strong returns over time and currently has a favorable composite score. Choose stocks based on price momentum, lower accruals ratio, gross profit/assets, and operating cash flow yield. Selected stocks include: Hapag-Lloyd, Compagnie de Saint Gobain, Nokia, Merck Kgaa, AP Moller-Maersk, Exor, Norsk Hydro, BHP Billiton, Anglo American, Next, Evraz.

Hedge fund sentiment turns negative for stocks and favorable for bonds. The U.S. dollar is on an intermediate-term sentiment sell signal, while gold is on a buy signal. Expected earnings growth is very high, but rolling over - could be a problem.

Even transitory inflation has been a headwind for stocks since 1980. Watch corporate profits, interest rates, and consumer sentiment. None of the three are bearish for stocks currently.

Broad-based jump in retail sales in October, despite higher inflation. Industrial production rebounds, led by vehicles and energy output. Import price inflation accelerates, while I/S ratio holds near record low, as supply chain issues persist. Builder confidence hits a ten-month high, a positive sign for housing starts in the near-term.

The secular case for overweighting European small-cap stocks is intact, earnings-momentum is strong, and valuations are reasonable. Concern over a potential peak in economic growth is offset by a strong equity market - bullish for small-cap stocks. Our analysis suggests overweighting small-cap stocks at the end of November, especially those with high momentum.

Real yields remain at or near record lows. Demand for inflation protection, financial repression, and foreign demand help explain this anomaly. Real yields matter for determining valuations in other asset classes.

Dividends and Value hit all-time highs (DVY, VLUE, EEMS). Outflows from semis and regional banks. Inflows to infrastructure, miners, and marijuana (PAVE, XME, MSOS). Mortgage back securities breakdown, positive flows to junk and long-term Treasurys (MBB, HYG, TLT).

Faster manufacturing growth in the Empire region. But outlook cools down. Cass freight expenditures far outpace volume, reflecting continued supply chain problems.

Cyclical trend buy signals are in effect including one from an "oversold" condition. The Short-term Momentum Guide is also on a buy signal. But DAVIS265 suggests the market is getting overbought on a short-term basis, after a long period of excessive pessimism.

Consumer sentiment falls to lowest level since 2011, as inflation expectations move up. Job openings continue to exceed the number of unemployed. Quit rate hits a new record high.

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

We are skeptical of Hydrogen's viability as an energy source because it is hard to transport/store and it takes energy to separate it from other elements. So far in Q4, clean energy investors do not share our caution. The Defiance Next Gen H2 (HDRO) ETF is up 29% behind a 70% surge in hydrogen fuel cell maker Plug Power (PLUG).

The U.S. is facing a shortage of 1.9 million housing units in 2021, up from our prior estimate of 1.4 million. Unsatisfied demand should keep upward pressure on house prices and rents. More persistent inflation could put upward pressure on inflation expectations resulting in an earlier than expected rate hike.

I thought that vehicle and home sales might be peaking, but there are offsets like supply problems and very low inventories. I also believed the economy would slow sharply from the Q2 yearly rate, but the popularity of the bi-partisan infrastructure bill and the Fed's reluctance to raise rates may mean more capital spending and employment growth. I have been in the inflation camp, but I thought it would give way longer term.

The MSCI Sweden Index has gone 414 days without a 10% correction, its fourth longest streak. The iShares MSCI Sweden ETF has moved up 11 spots in the last four weeks in our ETF Global Market Momentum ranks, the most of any fund. After declining this summer, intermediate-term breadth is again expanding, and valuation (earnings yield) is inline with its historical average.

Rising inflation has sent real yields to more negative levels, supporting gold. Gold Watch Report describes most gold indicators as bullish. Influences include U.S. dollar outlook, U.S. deficits, nominal yields, expected real yields, commodity breadth and relative sentiment.

We compare the COVID recovery among major countries, assessing various metrics of the economy, including real GDP and the labor market. Most major countries haven't yet recuperated their COVID economic losses. The few economies that have seen real GDP rise above pre-COVID levels, such as China and the U.S., are experiencing lop-sided recoveries.

Consumer comfort up for the second consecutive week. Bodes well for holiday spending. Housing affordability has declined. Budget deficit narrows post-pandemic.

A flood of liquidity has helped support asset prices. Turning off the liquidity spigot could provide a headwind to risk assets. But the headwind might be mild, as Treasury issuance will also be curtailed. Net Treasury issuance is expected to decline to around $1.1 trillion each of the next two years.

As investors anticipated the imminent passage of the U.S. infrastructure bill, construction-related companies and industries have rallied, and PAVE broke to a new high. PAVE has outperformed the S&P 500 by over 600 basis points since September 21, but we still need to see a relative strength breakout from this recommended ETF.

Highest annual inflation since 1990. Broad-based increase in consumer prices. OECD U.S. CLI points to slowing growth momentum. Wholesale I/S ratio stuck at a low level, as shortages persist. But jobless claims continue to decline. Mortgage applications up.

I have believed that stocks were overvalued, but some measures still look cheap versus bonds. I have thought that crowd psychology is excessively optimistic on stocks, but some sentiment indicators from consumer surveys show fairly excessive pessimism. I have thought that sidelined cash was low, but that is not true on an absolute basis. Public fund flows also show excessive optimism, but that has only been true for the last year.

Upgrading small-caps from neutral to overweight on a tactical basis. Technical breakouts, seasonality, relative valuations, tax proposals, and real rates favor small-caps. Overarching economic, stock market, and Fed cycles suggest small-cap strength could subside before Q2 2022.

The five largest S&P 500 stocks saw their weight in the index jump from 16.3% to 22.0% in 2020 and still comprise over one-fifth of the index's market cap. The general trend of falling sector concentration that began in the early 2000s has started to reverse for many sectors. The rise of cyclical Growth sectors in the S&P 500 has corresponded with a rise in the sectors' share of R&D and capex spending.

We analyze 12 sub-cycles and the overall cycle. Economic growth moderated in Q3 amid a surge in the Delta variant, waning fiscal stimulus, and supply chain issues. Nevertheless, the labor market continued to tighten.

PPI inflation held at a record-matching level in October. Small business optimism fell to its lowest level since March.

Eurozone economic outlook is broadly positive, and fears of stagflation look to have receded. But peak in PMI and negative economic surprises suggest much good news has been priced into equities. Technical indicators are broadly bullish supporting an overweight position in European equities relative to bonds.

Market-based inflation measures appear to have peaked, at least in the short-term. Breaks of uptrend lines are still needed. Shipping indexes and comments are encouraging. Survey-based measures haven't yet confirmed.

ETI rebound suggests strong payrolls growth in the next six months.

Global growth accelerated for a second month, according to the PMIs, setting the stage for a yearend equity rally. Growth broadened among countries and sectors as the Delta impact waned. But supply chain issues, shortages, and higher prices continue to provide risks to the outlook. U.S. and Japanese growth accelerated, Europe growth slowed, China was steady, while other EMs were mixed.

The trend plus the Fed remain bullish. The trend evidence started turning bullish on March 26, 2020 with a price thrust buy signal. The Fed is unlikely to be unfriendly, unless non-farm unit labor costs force them to tighten. But where I could be wrong is that the tape has only mixed breadth and is extended.

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

Broad-based increase in private payrolls, spurred by a subsiding Delta wave and expired jobless benefits. Labor force participation still disappointingly low, particularly among older workers. Labor market on track to reach full employment in 2H 2022, which could set up a Fed rate hike next summer.

On Tuesday, the iShares Russell 2000 Index ETF (IWM) finally broke out of its 10-month trading range on improving, intermediate-term breadth (chart). PBE, ACES, GNOM, PHO, MOON and PAVE (overweight) all share more than 50% of their constituents with IWM, also have improving breadth, and should benefit from an expanding, small-cap rally.

The Leading/Coincident Indicator is still on an April 2020 buy signal. Employment and capex are still very strong. But expectations of business conditions continue to suggest the economy will slow. And the trade deficit and government policy could not be much worse.

Despite rate hikes by emerging market central banks, most real rates still negative and most currencies weakening. Russia's currency trending higher and supporting market, contrasting Brazil and Turkey. China's currency influence an exception, as depreciation would be positive for market. U.S. real yield lowest, with differentials a negative influence on dollar.

The slide in productivity growth was led by the services sector, largely due to the Delta impact. Layoffs continue to trend lower. Consumer comfort rebounds. Trade deficit widens to a new record, reflecting strong domestic demand.

Fed to taper $15 billion per month, starting mid-month. Fed starting to turn off the liquidity spigot, creating potential headwinds to capital markets. The Fed's message should not lead to a large change in market expectations of two rate hikes next year and a flatter yield curve.

All sectors moved higher in October, with a mix of cyclical Growth and cyclical Value leadership. Tesla's 43.7% surge propelled Consumer Discretionary to the top of the sector rankings in October. A year-end rally could support reopening 2.0.

Services activity strengthens as Delta dies down. But firms continue to struggle with shortages. Prices surge. ADP payrolls growth accelerates after a summer lull. Light vehicle sales rebound, but level still near lowest since 2011. Factory orders up slightly.

Thematic breadth improved in October as 55% of the ETF themes we monitor outperformed the MSCI ACWI. We added a long China internet (KWEB) trade in the middle of the month. Green wave themes continue to attract assets and exhibit strong performance.

The 15% minimum tax and 1% repurchase tax could boost the S&P 500 effective tax rate from 17.8% to 20.9%. CY22 S&P 500 EPS growth estimates would fall from 8.7% to 5.7% ceteris paribus. Small-caps would be impacted much less by proposals.

Price/sales and market value/gross domestic income are near record high levels. Price/earnings ratios continue to be stretched on the upside. A $31 trillion asset allocation survey shows stocks with a near record-high weight, bonds near their 41-year norm, and cash is greatly underweight. Margin debt, advisory service sentiment, and consumer confidence show high risks.

Economic conditions remain positive in world's largest economies and COVID risks have abated among most of them, for now. All countries are seeing rising inflation, bolstered by supply-chain problems and labor and raw material shortages. The risk is that this translates into faster-than-anticipated central bank tightening

Large declines in consumer confidence temper growth in the near-term, but do not always lead to recession. Employment and wage gains, excess savings, asset valuations, and favorable credit conditions should continue to support spending growth. The current weight of the evidence is for continued expansion into 2022.

Homeownership rate continues to normalize. Housing shortage persists, driving up home prices.

The Fed will start to taper this month at a pace of $15 billion per month. The trimmed-mean PCE is showing a disturbing trend in underlying inflation, although inflation expectations remain well anchored. Unless compensation trends subside, a rate hike next summer sounds appropriate.

Both ISM and Markit Manufacturing PMIs decline in October. But levels still indicate robust growth. Supply chains and capacity constraints remain an issue. Price pressures rise. Construction spending disappoints.

Top-level model fell to 72% stock allocation. Highest allocations are with U.S. Large Caps, U.S. Value, and U.S. Growth. The global shipping rates indicator now favors bonds over stocks.

Big Mo Tape continues to be mildly bullish. We are introducing "Little Mo" for short-term momentum. It is on an October 5 buy signal, and has long been included in our Leading Indicator Model. NDR Volume Demand continues to dominate supply.

Spending growth moderates, as income declines more than expected. Inflation pressures mount. Consumer sentiment hovers near lowest level since 2011. One-year inflation expectations up. Labor shortages drive up compensation costs. Regional factory activity remains broadly positive, despite supply chain issues.

Clean energy bellwether Enphase Energy (ENPH) shot up 24% to an all-time closing high Wednesday on better than expected earnings. This pushed ICLN out of its six month trading range. We expect to use future volatility opportunistically for an entry closer to support (prior resistance at $24.00) but admit waiting also poses the risk of buying into strength later at higher prices.

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

Retail sales-to-inventories are through the roof. The "great resignation" quits rate is at record highs. Records on small business job openings, compensation, and pricing plans, yet the economic outlook continues to deteriorate. The top 10% get way richer - average Joe not doing so great.

Two U.S. listed ETFs with Bitcoin exposure via futures are now trading. Futures strategies are not direct investments in Bitcoin and, despite drawbacks, offer convenient exposure for those with constraints prohibiting direct ownership. Given pent up demand for a Bitcoin ETF, capacity of the funds may become a constraint and the fund's influence in the future's market will need monitoring.

Outperformance from cyclical sectors and risk-on proxies, underperformance from defensive sectors and risk-off proxies. Consistent with betas and correlations, with heavy weight of leaders supporting global rally. Financials most supported by valuations, rising bond yields and steepening yield curve. Tech relatively expensive and inversely correlated with yields, but ROE highest.

Real GDP posts smallest gain in five quarters. Delta spread curbs spending growth, while supply chains hit trade flows. Jobless claims decline to new pandemic lows. But consumer comfort still slides. A decline in contract signings suggests weaker existing home sales ahead.

Bullish year-end seasonality has supported cyclical over defensive leadership. Cyclical Value sectors have performed best during year-end rallies. Technicals and sector model favor cyclical sectors.

With new highs in breakeven rates, TIPS have become relatively overvalued. Nevertheless, TIPS continue to outperform the broader bond market. Although the days of TIPS outperformance may be ending, we are maintaining our overweight recommendation for now.

As the S&P 500 makes a new record high, several thematic ETFs are breaking out of trading ranges. ETFs breaking out of 3-6 months trading ranges include LIT, MOO, QCLN, and SKYY. We highlight some laggards as well like EDOC, GDX, and ONLN, though we have high holiday hopes for online retailers.

Capex orders advance. Supply chain issues boost unfilled order growth. Goods trade deficit widens to a new record and weighs on Q3 GDP projected growth. State conditions indicate broad-based expansion and minimal odds of recession.

The long-term eps growth/stability factor has been a top-performing strategy. 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: UnitedHealth, Cisco, Accenture, Charles Schwab, Applied Materials, S&P Global, Lam Research, Emerson Electric.

DAVIS265 hit extreme pessimism at just 16.7% bulls on 9/22/2021. But it also hit lows of 26.7% bulls on 8/19 and just 18.9% bulls on 10/6. This was unusual. This led to a lot of client questions, so today I will feature a number of DAVIS265 charts that are available daily on our website for clients to decide what to do about shifts and what has caused them.

Consumer confidence surprises on the upside, which is positive for spending growth. Inflation expectations also jump. New home sales and prices rise. But existing home price growth has eased. Richmond Fed regional activity rebounds.

When interpreting cycle composites, trend is more important than level. The weak year-end rally in the NDR S&P 500 cycle composite is driven by the 10-year cycle, which may be less relevant in 2021. NDR models remain bullish on U.S. equities.

A potential slowdown or strike by West Coast dockworkers in 2022 could further snarl supply chains. The return of La Nina could drive food and energy prices higher. Supply chain bottlenecks could take several months to several quarters to resolve themselves.

CFNAI falls to lowest level in seven months. But the breadth of the expansion suggests a low risk of recession. Texas factory activity and outlook improve modestly.

The NDR Inflation Timing Model is off its strongest readings, but remains on a November 2020 buy signal. The NDR Commodity Model is also on a November 2020 buy signal. Big Mo Tape and the Fab Five are on buy signals, even though both are rated neutral now. The Bond Benchmark Model is on the defensive.

Services PMI rebounds to a three-month high, as the Delta wave subsides. But the Manufacturing PMI falls to a seven-month low, on supply chain issues. Price pressures increase across the economy.

NDR's Sector Strategist Rob Anderson upgraded Financials mid-October and the price action in the KBW Bank ETF (KBWB) is supportive. KBWB recently broke above its June 1 high to make a new all-time high.

The Inflation Timing Model still shows fairly high inflation pressures - two measures from the ISM confirm. Wage pressures are still growing. But low levels of disposable personal income suggest inflation will ease later.

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

Downgrading our global real GDP growth estimate for 2021 to 5.6% from 6.1%. COVID-19 continues to be the biggest danger to the outlook, along with rising inflation risks, heightened by supply chain disruptions, which may prompt a quicker paring back of global monetary support. Weaker growth in the U.S. and China is partly offset by a stronger recovery in Europe.

Upgrading Emerging Markets and downgrading Europe ex. U.K. Both now marketweight. Adding 6% to EM, cutting 3% from both U.S. and Europe ex. U.K. Improved EM performance in developing year-end rally, standing to benefit from valuations. Watching regional model, scorecard, relative strength, breadth, China, bond yields and currencies.

Existing home sales rise to highest level since January, as buyers pre-empt a potential rise in mortgage rates. Leading indicators suggest continued but slower growth ahead. Philly Fed factory activity moderates. Consumer comfort continues to crater, even though jobless claims hit a new pandemic low.

Technical support and oversold indicators suggest that recent underperformance of the European Industrials sector may have run its course. However, trend and breadth indicators are bearish. And while there are some signs of improving fundamentals and increasing risk appetite, most external indicators suggest caution.

Net inflows to bond mutual funds and ETFs have slowed steadily this year, as bonds have become a less effective equity hedge and don't yield very much. Correlations between bonds and stocks have turned positive. For now, other buyers are taking up the slack, but that will be changing soon.

Falling COVID cases, rising interest rates and commodity prices, and a steepening yield curve have supported the rotation back to cyclical Value sectors. Industrials has performed better, but underlying industry trends and breadth look less bullish. Uncertainty around the passage of an infrastructure bill and negative capex trends are additional concerns for the sector.

Renewable energy's high, positive correlation with Big Energy broke down in 2017. If energy prices remain high, a return to that relationship would be bullish for renewable sources of energy.

ABI trend points to continued recovery in nonresidential construction spending into 2022. Rising mortgage rates curb demand.

Price momentum has been one of the top-performing factors over time and during recent few weeks. Choose stocks based on price momentum, lower accruals ratio, gross profit/assets, operating cash flow yield, and net payout yield. Selected stocks include: Deutsche Post, Compagnie de Saint Gobain, CRH, Hapag-Lloyd, Merck Kgaa, Michelin, Telefonica, Norsk Hydro, Relx, BHP Billiton, Anglo American, Ashtead Group, Imperial Brands, Next.

CEO Confidence falls, but it is still in an excessive optimism zone. Using price/five-year earnings, hypothetical results indicate below average returns historically. Dividend yields are low, even using a questionable downward biased linear regression trendline.

Earnings growth should remain strong in Q3. Watch for signs that supply chains are pressuring margins. The high bar set in Q2 could be setting up a shift in sentiment toward earnings.

Business inventories relative to sales are near record lows, derailed by supply chain problems. The situation is the worst for retailers. A resumption of the inventory cycle means a potential boost to growth in 2022. Holding more inventories to hedge against future supply shocks may also keep inflation pressures elevated for longer.

Both housing starts and permits surprise on the downside, likely due to material and labor shortages. But rising builder optimism points to improvement in the near-term.

We remain neutral on the yield curve amid diverging trends within the curve. Supply chain disruptions are boosting near-term inflation expectations. The market is increasingly betting that the Fed will take action by raising rates to cool these inflationary pressures.

Financials, energy and infrastructure breakout (IXG, IGF, IXC). Positive aggregate flows to Value, Financials, Energy and Tech. Positive flows to non gold miners, solar and uranium also (PICK, TAN, URA).

Industrial production declines due to component shortages and effects of Hurricane Ida. Builder confidence jumps, suggesting a pickup in housing starts in the near-term.

October 2020 breadth thrust buy signal closes out successfully - only hypothetical negative since 1947 was in 1987, which looks a little like now. The market has been churning - not a great sign. We hit the top of a trend channel, with bad breadth from new lows. I show some chart points to watch.

Retail sales surprise on the upside. But falling sentiment creates a downside risk for spending growth this holiday season. Import prices rise, adding to expectations for elevated inflation into yearend. Empire manufacturing activity moderates, but outlook strengthens. Business inventories increase, but are still out of line with sales.

Nearing $70 million, 21-day outflows from Global X's EV ETF (DRIV) may be an early sign of eroding investor enthusiasm. Additionally, a series of lower highs since early August coupled with Congressional indecision has us concerned about downside risk.

The Leading/Coincident Index is still rising - expansion continues. But consumer expectations of business conditions argues that growth should slow to just 3.1%. Michigan Consumer Sentiment agrees, projecting just 2.8% growth, down from 12.2% in the latest yearly rate. Credit impulses in the U.S. and China also suggest slowing growth.

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

Rallies in natural gas and crude have benefitted commodity exporters like the Russian Federation. The MSCI Russia Index is inexpensive and has good momentum - both should help sustain the current rally. The VanEck Russia ETF (RSX) is nearing an overbought extreme. Combined with rising COVID cases has us cautious in the near term.

Producer prices still rising at an above-average pace. But pipeline inflation pressures appear to be peaking. Supply chain issues and labor shortages drag down CFO optimism. Initial jobless claims fall below 300K, but consumer comfort continues to slide.

Indices basing out ahead of likely rally. Watch for secondary highs. Also watching for confirmation from thrust indicators and longer-term breadth indicators. Continuing decline in new COVID cases would have positive implications for equities. RO/RO, ACWI SHUT and cyclical/defensive ratio reflect upturn in economic confidence.

Upgrading Energy and Financials to overweight. Downgrading Health Care to underweight. Falling COVID cases, rising rates and commodity prices, and a steepening yield curve have supported a rotation back to cyclical Value sectors. The position changes get us more in line with the sector model.

Elevated inflation and slowing growth "feels" stagflationary. Although we have concerns about the transitory nature of inflation, inflation expectations remain well anchored. Growth is too strong to be considered stagflationary.

Global supply chain issues are primarily due to an enormous imbalance in supply and demand, instigated by the pandemic. The supply chain problem is widespread globally, but more prevalent among developed economies. The supply chain issues are unlikely to be resolved in the short term, but there are signs of a light at the end of the tunnel.

Shelter and food account for more than half of the monthly increase in inflation. But price increases broaden across more CPI categories. Supply chain issues and rising shipping costs continue to pressure inflation.

Initiating new trade to go long CSI China Internet ETF (KWEB) with a $63 price target and a $43 stop loss, representing an attractive 2/1 (26%/-13%) reward/risk profile from current levels.

Short-term sentiment on crude is very optimistic, suggesting a pullback, but long-term trend evidence is still oversold and the rig count is low - both bullish. Short-term stock sentiment indicates we are oversold. But intermediate-term sentiment on stocks is just coming down from a long period of being overbought, and price/sales and market value to GDI are both sky high.

Leadership is similar to late-2020/early-2021, with Value and small-caps outperforming. The reopening 2.0 trade will likely be shorter and not as strong as the 1.0 version. We are waiting for model alignment and seasonality before potentially changing our intermediate-term recommendations.

JOLTS show quit rate hits a new record, despite fewer job openings. Labor and inventory shortages continue to plague small businesses. OECD U.S. CLI shows growth stalled in Q3.

Faltering trend, momentum and breadth indicators, give some cause for concern. But our analysis suggests this is likely a period of consolidation and equities will likely end the year higher. Sentiment has also become excessively pessimistic, and recent outperformance of riskier industries and stocks suggests potential for a rebound in equities.

Slashing U.K. bond exposure by 5% to zero. Putting 3% in Japan and 2% in Europe. First zero U.K. allocation since we began making recommendations. Technical and fundamental factors weighing on the U.K. market.

First decline in the ETI in seven months, pointing to slower payrolls growth in the near-term. It also suggests slower real GDP growth into yearend.

Market moves are most healthy (bullish) when they are broad based (strong breadth). We show two NDR charts on this and our results. We show moving average breadth strength from 5 to 252 days for 22 market indexes. I am concentrating on 50- and 200-day moving averages.

Another disappointing employment report with payrolls expanding by the smallest amount of the year. But wage growth accelerated, fanning inflation fears amid tight labor markets. Unemployment rate plunges below 5%, although participation rate retreats. There seems to be enough cumulative progress in labor markets to allow the Fed to announce a tapering of asset purchases at its next FOMC meeting.

Bitcoin investors seem emboldened by Fed Chair Powell noting he has "no intention" of banning crypto and SEC Chair Gensler replying the same when asked about a ban, noting "No, that would be up to Congress". Given Bitcoin is only about 14% away from its all-time high of $63.4k and that it has a 20% correction every 40 days (on average), we will likely wait for a pullback or a break to new highs before upgrading.

Money supply growth is positive, but slowing, despite Fed ease. And the Fed says they will likely taper. Economic liquidity is already negative, by taking out commodity PPI inflation and industrial production from M2. In any case, stocks have run ahead of money growth. Even with the fiscal deficits that have been added, stimulus is falling.

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