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We looked at thematic and related ETFs that have strong Q4 seasonality, and a number of cyclical themes/industries stood out. Semiconductors (SOXX, FTXL) and Infrastructure/Materials (PAVE, IYM) topped our best Q4 performer list while Millennial Spending (MILN) was at the bottom. We would not invest based solely on seasonality, but it is good to be aware. For example, we are comfortable being overweight AI heading into Q4 knowing Semiconductors are seasonally strong in Q4.

Architecture billings contract at the fastest pace since February. But mortgage applications rise, suggesting some near-term pickup in existing home sales.

Stocks with greater price momentum and trend have outperformed over time. Select companies based on cash position, EPS growth/stability, price momentum, trend deviation, and free cash flow/enterprise value. Favored stocks include: Apple, Alphabet, Visa, Adobe, Cisco, Accenture, Intuit, Lowe's, Applied Materials, TJX Companies.

Stock allocation for households, institutions, and foreigners increased in Q2. Rising interest rates should entice investors into cash, but cash remains low relative to stocks. Buybacks continue, but they may be slowing down. Household real estate value is up, but still lower historically relative to stocks.

The UAW strike presents a downside risk to real GDP growth and an upside risk to inflation in Q4. Historically, increased labor activism has been associated with rising unit labor costs and downside pressure on profit margins. Current trends keep another Fed rate hike later this year in play and restrictive rates for longer after that.

Housing starts surprise to the downside in August. But a pickup in building permits suggests the weakness may be temporary.

Rising oil prices and inflation expectations pose a risk to equities. While economic data shows an increased risk of a eurozone recession. But European equities can still rise while the global economy holds up, even if the eurozone stagnates.

Shifting 5% from U.S. to Europe, U.K. Divergent policy paths, technicals, and model positioning prompt shift. Increasing U.K. to overweight from marketweight. Adding to Europe but it stays at marketweight. Reducing U.S. to marketweight from overweight. Fed to remain restrictive for longer.

HMI falls below 50 for the first time since April. Suggests weaker housing starts in the coming months. Cass Freight shipments continue to decline from a year ago, a sign of weakness in the goods economy.

New highs in concentration reached by top 10 stocks as a percentage of market cap. Breadth improvement is needed for a bullish outcome as in 2020. After the concentration of 2000 and 2001, breadth failed to improve and bear markets followed. Watch Rally Watch aggregate and equal-weighted ACWI.

Industrial production up, led by strength in energy and core sectors. Empire manufacturing rebounds and outlook firms. Import prices rise, led by fuel. But consumer inflation expectations slide.

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

Given still high CPI growth we have been amazed that Consumer Confidence for lower income consumers has been above 100 since April. However, that Confidence level plunged 16.7 points in August as Gas Station sales share of retail sales jumped to nearly 8%.

Led by Office and Apartments, CRE performance remains under pressure. The Apartment market should remain stressed, as new supply comes online. We identify the factors we need to see for a CRE bottom. We introduce a new report on REIT performance by sector.

Debt is making new highs in absolute terms, while interest rates are rising. Government debt service as a percent of government spending, the mortgage yield curve, and banks tightening lending standards are a recipe for trouble. Yet, the NDR Credit Conditions Index says things are still quite manageable - why?

Shifting tactical allocation from neutral to favoring large-caps. Small-caps' bounce off the post-SVB lows has failed, with the Russell 2000/1000 ratio hitting new lows. The market, economic, and earnings cycles favor large-caps; risks include an oversold bounce and valuations.

Retail sales surprise to the upside in August, boosted by higher gas prices. Other sales growth moderates. PPI jumps, also driven by higher energy costs. Initial jobless claims remain low. But labor demand will likely cool in the coming months, as CEO hiring plans fell into contraction territory.

Dollar optimism excessive with long-term downtrend intact. Still an inverse correlation with gold, which has been reversing from excessive pessimism. Rally inconsistent with rising oil prices and positive breadth among commodities and currencies. Less support from yield differentials, with seasonality worsening.

While the restricted supply side of the bull case for oil is well established, the demand side hinges on a U.S. soft-landing and inoculation vs. slowdowns in Europe and China. WTI is in an uptrend with positive 12-month momentum and trading near its 52-week high. However, boosts from hedge fund short positioning may be losing steam. Also, the fourth quarter represents the weakest seasonal period for WTI and sentiment just moved into the excessive optimism zone.

Among major economies, workforce participation of females ages 25-54 has surged faster than males, suggesting flexible work is making it easier for this cohort to juggle work and family. This could also contribute to higher birth rates. A rising and more active working age population has positive implications for long-term growth and equity market returns.

Most forecasters have blown this year's GDP call because they paid too much attention to Fed rate hikes and not enough attention to real world credit conditions. Our CCI has correctly summarized credit conditions this cycle. With the private sector flush with cash and low rate debt, driving the economy into recession will be difficult.

Our defensive SHUT Index is off to its second-worst start to a bull market on record. There has tended to be more parity between the returns of cyclical and defensive sectors in year two of bull markets. Defensive sectors look primed for a bounce, but the weight of the evidence still favors cyclical leadership.

Higher energy prices boost headline CPI. Core CPI inflation moderates in line with expectations. But super-core inflation picks up. It points to a slowdown in the disinflation process ahead. We expect the Fed to stand pat next week, but lean toward another rate hike later, most likely in December.

China's recent negative stance toward the iPhone is a concern given the Greater China segment accounts for nearly 19% of Apple sales. Apple's P/E valuation looks rich compared to its ROE. While other Tech Titans have high valuations, they are better supported by AI exposure. Our overweighted AI & Tech ETF (AIQ) has a 2.9% weight in Apple, which is not a major concern. However, If negative sentiment spreads to all of Big Tech, it will be a concern.

The bull market is off to the third weakest start since 1950. Rising interest rates have pushed investors into cash and stocks with higher expected earnings growth. A soft landing or no landing could lead to an EPS rebound that favors cyclical Value stocks, but higher rates have raised the bar for owning them.

There is a strategic case for Small-Caps based on valuations and the outlook for earnings growth. But technical, seasonal, and macroeconomic indicators suggest downside risk in the near-term. Improving relative strength and economic indicators would suggest a more bullish tactical outlook.

NFIB optimism about the economy dips, pointing to some deceleration in growth. Inflation indicators edge up. Manpower hiring outlook remains strong, led by large firms.

ULC remain far too high in Europe and the U.K. and too low in Japan. Inflation expectations have not stabilized in the Eurozone. As a result, more restrictive policy may be needed, particularly by the ECB. A normalization of BoJ policy could push JGB yields 50 bp higher and put upward pressure on yields of other developed economies. U.K. bond market finally showing some backbone.

Equities tracking one-year and four-year cycles, which show uptrends ahead. Cycle composite indicates delayed response before rallying into year-end. Mean six-month changes lowest in May-October, highest in November-April. Mean three-month changes lowest in August-October, highest in October-December.

Manheim used vehicle prices post first increase in five months, while y/y decline eases. It's an upside risk to core inflation in Q4. Wholesale inventories and I/S ratio decline. Housing affordability remains depressed.

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

Prior to 2017, it was unusual for XLE/ICLN's 52-week correlation to drop below 0.50. However, since March 2021, the correlation has been less stable, below 0.50, and negative briefly in early 2022. We suspect clean and traditional energy will not decouple for long. Given crude's recent uptrend, supported by a tight market and limited supply, we'd interpret a rising XLE/ICLN correlation as bullish for the later.

Despite higher oil prices, inflation expectations remain remarkably stable. A prolonged UAW strike could push new and used vehicle prices up again, and encourage other workers to demand more compensation. Medical costs should rebound starting in Q4. Higher home prices and rents could slow the decline in shelter.

Banks continued to see a deposit drain in Q2, increasing their reliance on more costly wholesale funding. These trends are weighing on net interest margins. As long as the Fed remains restrictive, we would expect to see continue pressure on deposits and margins.

An equity allocation increase to maximum overweight would be supported by rising Rally Watch aggregate with breadth thrust signals, indicator improvement in Global Balanced Account Model and RO/RO confirmation. An equity allocation decrease would be supported by Rally Watch aggregate of less than 15%, more sell signals from model's internals and RO/RO breakdown. Seasonal influence to shift from headwind to tailwind.

Jobless claims fall to lowest level since February, a sign that labor demand remains robust. Q2 productivity revised slightly down, while ULC up. Implies headwinds to the inflation outlook in the coming months.

The global economy saw momentum ease for a third month in August, according to the latest global PMIs. But there isn't sufficient evidence to suggest the global economy is entering a severe recession. Services growth is stalling, but manufacturing may be stabilizing after a year-long rout. Europe is flirting with recession, while trends in China and the U.S. have slowed. Japan and India continue to report robust activity.

After strong YTD returns through July and August pullback, the S&P 500 has tended to post big additional gains through year-end. Short-term weakness has been common before the year-end rally. Watch long-term breadth and sentiment composites for signs that the market is poised to resume its uptrend.

The Catastrophic Stop model entered September with a fully invested equity allocation recommendation. The International Equity Core model is overweight Australia, Germany, Japan, and China, and underweight the U.K., Canada, France, and Switzerland. The Explore model favors Poland, Mexico, Peru, Spain, Netherlands, and Italy.

The All-Country World ex.-U.S. Total Return Index declined almost 450 basis points in August. The International Equity Core model is overweight Australia, Germany, Japan, and China, and underweight the U.K., Canada, France, and Switzerland. The Explore model favors Poland, Mexico, Peru, Spain, Netherlands, and Italy.

The S&P 500 fell 1.8% in August, with all sectors but Energy declining during the month. Despite the broad weakness, leadership was more cyclical than defensive. Yields were volatile in August, with the gyrations impacting leadership trends.

Most asset classes struggled in August and thematic indices did not buck the trend. Only 7 of 51 themes we track outperformed the S&P 500. Weakness may not be over if the Fed hikes again and commodities continue to rise. We will look for upgrade opportunities on pullbacks and have clean energy on our radar. We upgraded Uranium/Uranium production on August 30 and maintain our overweights on AI and China Tech.

ISM Services PMI indicates faster growth, but S&P Global PMI shows near-stagnation. Cost pressures in both surveys rise, an upside risk to inflation in the coming months. Trade deficit widens. Trade with China shrinks, but it increases with other regions/countries. Mortgage applications resume their decline.

Broad market technical indicators suggest increased likelihood of a European equity drawdown. But risk appetite remains healthy and recent weakness is in-line with typical seasonal patterns. Excessive short-term pessimism also supports the bullish case for European equities, which typically perform strongly in the fourth quarter.

The Fixed Income Risk Management model dropped slightly from last month but entered September with a fully invested allocation to fixed income sectors. The Fixed Income Allocation model remains with a risk-on message and suggested no rebalancing from the month prior. The model remains overweight U.S. High-Yield Bonds, U.S. Investment Grade Corporate, Float ing Rate Notes, and Emerging Market Bonds and underweight U.S. Long-Term Treasurys, U.S. Treasury Inflation-Protected Securities, and U.S. Mortgage-Backed Securities.

The Bloomberg Barclays U.S. Aggre gate Bond Total Return Index was down less than 1% in August and breadth weakened. The Fixed Income Allocation model remains with a risk-on message and suggested no rebalancing from the month prior. The model remains overweight U.S. High-Yield Bonds, U.S. Investment Grade Corporate, Float ing Rate Notes, and Emerging Market Bonds and underweight U.S. Long-Term Treasurys, U.S. Treasury Inflation-Protected Securities, and U.S. Mortgage-Backed Securities.

The Catastrophic Stop model dropped slightly from last month but entered September with a fully invested equity allocation recommendation. The Sector model is overweight Information Technology, Communication Services, and Utilities. While Health Care, Industrials, and Financials moved to marketweight, Consumer Discretionary, Consumer Staples, Materials, and Real Estate are underweight.

Breadth weakened as 10 of the 11 S&P 500 sectors registering negative returns in the month of August. The Sector model is overweight Information Technology, Communication Services, and Utilities. While Health Care, Industrials, and Financials moved to marketweight, Consumer Discretionary, Consumer Staples, Materials, and Real Estate are underweight.

During August, global stocks underperformed U.S. bonds by more than 210 ba sis points. The Global Allocation model's equity allocation remained above benchmark allocation. The model favors Japan and Pacific ex. Japan, while holding below benchmark al location for the U.K. and Canada.

During August, global stocks underperformed global bonds by more than 135 basis points. The model's equity allocation was unchanged and remained above benchmark weighting, with U.S. Large-Caps and U.S. Growth each receiving more than a 15% allocation. The largest fixed income allocations remained U.S. High-Yield and Emerging Markets bonds, both with more than 10% weights.

Most valuation metrics show the S&P 500 to be moderately or extremely overvalued on an absolute basis. Long-term bonds are also expensive, so stocks are fairly valued by comparison. Stocks are the most overvalued versus cash since the aftermath of the dotcom bubble.

ETI points to continued slowing in job growth. Vehicle sales decline.

Trend evidence leans bullish long-term to short-term. But NDR volume demand is only barely above supply - demand needs a strong boost. High optimism is not fully corrected.

The average duration of MBS has increased, as prepayments have plunged. The duration of MBS is now roughly equal to that of Treasurys. Treasurys and MBS share some characteristics but also have some differences. MBS is starting to outperform Treasurys, and we favor MBS over Treasurys.

A new recovery high in the participation rate caused the unemployment rate to jump to 3.8% from 3.5%. Payrolls growth continues to slow outside of noncyclical sectors. Fed to remain on hold later this month. ISM Manufacturing PMI improves, but still in contraction territory.

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

A panel of three judges ruled in favor of Grayscale in their suit against the SEC for not approving their request for a Bitcoin ETF.

Low response rates in economic data and alternative measures of excess pandemic savings suggest that the consumer may not be as strong as we think. This could mean the Fed may tighten too much. A large and well-employed household sector isn't always the best scenario for long-term growth and equity market returns.

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

Consumer spending rises more than expected, pushing up inflation. Suggests the Fed tightening cycle is not yet over. Layoff trends mixed, but in aggregate show that labor demand is still strong. Chicago Business Barometer shows some improvement.

Global uptrend supported by earnings beat rates, breadth of positive revisions, and rising forward earnings growth relative to bottoming trailing growth. Regional index earnings picture most favorable for the U.S., followed by Japan, Emerging Markets and Canada. Consumer Discretionary and Information Technology stand out among ACWI sectors. Trends of positive forward earnings growth have strengthened.

Unlike Energy, Materials has not benefitted much from the summer commodity rally. Energy's relative performance has delinked with Chinese equities, while Materials' correlation is at a decade high. All four of Materials' commodity-related sector model indicators are bearish.

A weaker USD is my biggest macro trade over the next 3-5 years. Continued overvaluation and bullish sentiment make this an attractive entry point. Cracks in the labor market and narrowing rate differentials should weigh on the USD, along with political polarization and waning foreign demand for U.S. Treasurys. Beneficiaries include gold, commodities, foreign bonds, and foreign stocks.

ADP payrolls gain the least in five months, led by slower job growth in leisure/hospitality. Q2 real GDP growth revised down. Profits decline, led by the financial sector. Advance goods trade deficit widens and could be a negative for Q3 GDP growth. Pending home sales and mortgage applications pick up but to still low levels.

The economy's resilience has been surprising. But past tightening should slow down growth in the coming year. A steeper Phillips curve may help bring down inflation without a big hit on employment. Soft landing is more likely, but Fed policy will remain restrictive. Rising real fed funds rate is a headwind to equities.

The second half of pre-election years into the first half of election years is the second-weakest part of the four-year presidential cycle. Weakness has been less severe under first-term presidents. Election-year rally often begins as political uncertainty dissipates.

Reshaping global alliances prioritizes domestic energy production which stands to benefit uranium production/enrichment and nuclear energy. URA relative strength has seen a resurgence of its uptrend with a recent relative golden cross signal. We believe URA/ACWI relative strength will retest 2022 highs, representing 15.5% relative upside.

Margin debt has risen from oversold levels, triggering a new buy signal. Household cash and relative money market assets are low versus long-term averages. Foreign investors and corporations have been good sources of demand in 2023. Stock supply via IPOs and secondary offerings has risen but is not yet excessive.

Job openings, hires, and quits decline. Labor market rebalancing points to slower wage growth. Consumer confidence wavers amid lower job availability. Existing home prices keep rising.

Asset allocation can be effectively solved by going back to the fundamentals of growth and inflation. We combined our growth and inflation regimes to help determine the performance of various combinations of stock and bond portfolios. We also introduce a report illustrating the performance of nine asset classes under the nine regime combinations.

Since our last quarterly update, the economic picture has diverged among the world's largest economies. The outlooks for China and Eurozone have worsened, the U.S. is seeing signs of soft landing, while growth trends remain positive in Japan and India. Most economies see downside risks, as sticky core price pressures argue against central bank cuts in the near-term.

Top-level equity allocation declined to near benchmark. Weaker global equity market breadth drove the equity allocation decline. U.S. Large Caps, U.S. Growth, and U.S. Value still have the largest allocations.

Texas manufacturing declining for a 16th consecutive month in August. Cost pressures in the region rise.

The ACWI uptrend is well intact, with the U.S. and Japan trends strongest in seven-way framework. India has the most trend strength among BRICS plus six, followed by Brazil. China trend is the weakest in the group and one of the weakest among all markets.

Both current conditions and expectations weaken. Inflation expectations pick up.

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

At 4.24%, the yield on the 10-year Treasury is likely at an inflection point - ready to breakout to new 15+ year highs or mean revert back below 4. A yield breakout should benefit Energy and may prompt us to follow Sector Strategist Rob Anderson's recent Energy upgrade while a back-up in yields may breathe new life into Tech and AI.

Despite higher interest rates, the economy has been performing better than expected. Consumer loan delinquencies up. But broadly favorable financial conditions support a soft landing. Higher yields have created downside pressure for equities but have not derailed the cyclical bull market.

August decline similar to February-March correction, which also started with excessive optimism and was driven by rising bond yields. Now as then, bond yield downturn has helped market start to recover from oversold condition with optimism relieved and long-term uptrend intact. Also like February-March, dollar rallied within long-term downtrend and gold corrected within long-term uptrend.

Upgrading Energy to overweight while reducing allocation to Consumer Staples, which remains underweight. Our Crude Futures and Commodity models have turned bullish. The sector model is marketweight, but several indicators are nearing bullish readings. The continued resiliency of the economy is key for the sector.

Soft core business orders point to continued weakness in manufacturing. But CFNAI suggests economic growth strengthened in early Q3. Initial jobless claims decline again, as labor demand remains solid.

For investors with patient capital and longer time horizons, private credit should offer higher yields and better returns in the coming years. An aggressive Fed hiking cycle and tighter bank credit caused the lending environment to tilt in favor of private credit. Higher bank capital will push more lending into the shadows.

The jump in the 10-year yield has not been violent enough to derail the stock market, by historical standards. The risk of a policy mistake in late 2023 or early 2024 remains on the table. Competition from the bond market and rising interest expense present long-term risks to stocks.

U.S. Flash Composite PMI falls to a six-month low in August, as business activity nearly stalls. Growth narrows across states, but recession risk still low. New home sales rise to highest level in 17 months. But surging mortgage rates weigh on mortgage applications and the outlook for home sales.

The best relative strength trends within Tech including Cloud, AI, Internet, and Social Media are being aided by Tech Titan year-to-date (YTD) performance. While Titans are aiding tech theme trends, nearly all are well below their 2019 year-end/pre-pandemic price and still have much to prove.

Free cash flow/enterprise value has been the top-performing factor and has an elevated composite score. Select companies based on cash position, EPS growth/stability, price momentum, trend deviation, and free cash flow/enterprise value. Favored stocks include: Apple, Alphabet, Visa, Mastercard, Adobe, Cisco, Netflix, Intuit, Applied Materials, American Express.

As trend momentum strengthened, Daily Trading Sentiment Composite showed increasing optimism, which has now been relieved. This correction has had similarities to declines in 2021 and earlier this year, which were followed by recoveries to new highs. Rising bond yields remain a significant risk, but excessive bond pessimism is encouraging.

Continued decline in existing home sales amid rising mortgage rates and lack of inventory. Richmond Fed activity still sluggish.

We explain why yields have risen and what to expect in the near-term and longer term. The market is underpricing the risk of additional rate hikes. We give our Powell preview at Jackson Hole.

The Fab Five Tape fell from bullish to neutral on August 17. Big Mo Tape, Global Big Mo, and a stochastics indicator were responsible for the deterioration. Watch volume supply versus volume demand for signs sellers are retaking control.

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

The e-commerce theme was roughed-up in 2021-2022 as internet sales gave back some Covid market share gains. However, with internet sales back to steadily gaining share again, the theme is on the mend.

On one hand, the huge jump in the budget deficit this year has aided economic growth, profits, and stock prices. On the other hand, debt service has exploded. High government debt weakens growth longer-term. It could also threaten another possible government shutdown this year.

LEI fell in July for the 16th straight month. But current activity and our ETM improved, implying less recession risk for the near-term. Philly Fed manufacturing activity rebounded. New orders and shipments surged. Jobless claims declined last week, reflecting continued strong labor demand. CRE sentiment improved modestly, but sector disparities persisted.

There has been a growing divergence between Banks' performance and interest rates. Banks have tightened lending standards more during this Fed hiking cycle than any previous ones since at least 1994. We highlight indicators that have improved, as well as others we are watching to turn more bullish before a potential upgrade of the sector.

The U.S. government debt build-up, the second largest in the G7, has been a long time in the making. This relatively dour position shouldn't be the case. Government is smaller and demographics and growth prospects are comparatively better in the United States. A better U.S. fiscal position should reduce the risk to the dollar's reserve currency status.

Growth is an important determinant of the performance of 60/40 and other multi-asset portfolios. Equities outperform when growth is rising and underperform when growth is contracting. Bonds showed little difference among various growth regimes. Clients can also evaluate the performance of alternative assets under growth and inflation regimes.

Better market breadth has allowed oversold Value areas to catch up to Growth. Valuations and earnings growth are tilting in Value's favor. Faster economic growth, rising commodity prices, and higher long-term rates have painted a better backdrop for Value.

Industrial production jumps in July, led by energy and vehicles output. Housing starts up, but face risks from higher mortgage rates and falling builder confidence. Mortgage applications continue to decline.

India's relatively young population, growing working age population, and expected growing middle class make it an attractive Demographic theme. The India Consumer ETF (INCO) provides good exposure.

The median stock is modestly overvalued after taking into account the upward drift of P/Es over time. Median expected earnings growth has started to rebound but remains below excessively high levels. The combination of the median P/E and expected EPS growth illustrates the challenge for the market to repeat strong first-half gains.

Retail sales rise more that expected in July, boosting the projection for Q3 GDP growth. But declining builder confidence, contracting Empire manufacturing activity, and falling freight volume present headwinds. Import prices rise by the most in over a year. Business inventories hold flat.

59% of European companies have beat Q2 earnings forecasts, slightly higher than the long-run median. Financials have had the highest earnings beats, followed by Information Technology and Industrials, while most Energy stocks missed earnings forecasts. An improving earnings outlook, the trend in trailing earnings, and valuations are supportive of equities.

We are upgrading TIPS to marketweight from underweight on trend and valuation. On a trend basis, TIPS are range-bound compared to nominals and neutral from a relative value perspective. TIPS look attractive on an absolute basis.

The majority of indicators and models in the Fab Five Tape remain bullish. Big Mo Tape has fallen from its most bullish zone, but initial thrusts above 79% have been bullish historically. Seasonality and the cycle composite along with optimistic sentiment could present short-term headwinds.

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

Producer prices rise more than expected in July. Suggests the Fed may keep rates higher for longer. Consumer sentiment off slightly in August.

All green themes are underperforming the S&P 500 so far this year. However, since early July, Uranium/Nuclear has been heating up.

Although job growth is clearly slowing, there are reasons to believe the July numbers were overstated, underlying growth is weaker, and is likely to slow even further in the months ahead. Seasonal adjustments, weather, revisions, and strikes are all likely to impact the trend. A slew of leading indicators all point to further slowing in the coming months.

Natural gas continues to work off the extreme price appreciation following Russia's invasion of Ukraine. While late summer has been historically favorable for natural gas, it is heading into a seasonably unfavorable fourth quarter. Sentiment is overly optimistic, and price looks stretched to the upside.

CPI inflation matches expectations in July. Shelter and core services inflation still too high. Regardless of whether the Fed hikes again by yearend, we expect rates to remain higher for longer. Initial jobless claims jump in the latest week, but hold within recent range, a sign that labor demand is still strong. Housing affordability deteriorates further, on higher mortgage rates and home prices.

Downgrading Japan Index from overweight to marketweight, upgrading Emerging Markets Index from underweight to marketweight. Weighting shift of 3% supported by changes in Global Regional Equity Model. China now contributing to improving EM breadth, with China and EM relatively cheap. Watching model, ACWI Scorecard and currency trends.

After a dominate start to the year, Technology has lost momentum. Historically, strong sector outperformance to begin a year is followed by more relative gains, on average. Seasonality, sentiment, and a bullish sector model keep us overweight Technology for now, but mega-cap weakness and valuations have the sector on a short leash for a downgrade.

We provide an update on the economies that tightened policy early in this cycle. The results are mixed, with half having fallen into recession and few meeting their inflation targets. This suggests some hope that an economic soft landing is possible. But it's very important to note that all these economies have very different inflation and economic dynamics.

The Fed continues to redeem its securities holdings and shrink its balance sheet, reducing the liquidity it provides to banks and the economy. Risk assets love liquidity. Continued draining of liquidity presents a risk for equities and credit.

A bull steepener has been the worst yield curve regime for stocks; otherwise, S&P 500 has posted solid gains, on average. A bear steepener has been the most risk-on regime, and a bull steepener the most risk-off. The current bear flattener regime has favored stocks, small-caps, Growth, Low Quality, and Dividend Non-Payers.

EVs continue to take market share from ICE vehicles and sales growth remains strong in primary markets. However, a mixed bag of economic prospects for the three largest EV markets may weigh on growth expectations. Unprofitable EV manufacturers are vulnerable in a slowing economy, particularly from OEMs that subsidize EV production with legacy ICE profits.

Pervasive pessimism in 2023 has been replaced by optimism in our sentiment composites in recent months. The NDR Daily Trading Sentiment Composite is in its sixth-longest streak of excessive optimism on record. After previous long optimism runs have ended, market returns have been modestly weaker in the short term and mixed thereafter.

The resumption of student loan payments should have a limited downside impact on consumer spending and the economy. Excess savings and government plans to facilitate repayment can offset the potential cyclical drag. Student loan debt is disproportionately held by high-income earners and those with advanced degrees who are better positioned to make payments.

NFIB index rises for a third straight month in July. Points to continued growth for the broader economy. Trade deficit narrows. Wholesale inventories decline, led by nondurables.

We find our rationale for preferring Cyclical Growth sectors remains intact, with Information Technology looking the most interesting. Recent developments in the macro environment also support a more neutral stance on Cyclical Value sectors. Within Defensive sectors we would underweight Communication Services.

Bonds are back from the pathetically low yields of 2-3 years ago. But they are not back from a historical perspective or a return perspective. From a portfolio diversification standpoint, bonds are much more attractive. Bonds are looking better in the short-term.

ETI rebounds, pointing to continued job growth in 2H. Used vehicle prices decline, but at a slower monthly rate, implying less disinflation.

Given expectations for a choppier second half, the current streaks of days before the start of corrections may be nearing an end. Extended streaks have, on average, resulted in greater appreciation before a peak, less severe corrections following a peak, and stronger subsequent rallies. When peaks have occurred during bull markets, the initial correction is similar but subsequent rallies exhibit even better performance.

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

Job growth is slowing, the labor market is tight, and wages are rising in July. Fewer workers being fired is additional evidence of labor hoarding. This report keeps the Fed in play and watching data, but it is not sufficient for a September rate hike.

The Catastrophic Stop model was unchanged from last month and entered August with a fully invested equity allocation recommendation. The International Equity Core model is overweight Australia, Germany, Canada, and China and underweight the U.K., Japan, France, and Switzerland. The Explore model favors Chile, India, Netherlands, South Korea, Sweden, and Taiwan.

The All-Country World ex.-U.S. Total Return Index increased over 400 basis points in July. The International Equity Core model is overweight Australia, Germany, Canada, and China and underweight the U.K., Japan, France, and Switzerland. The Explore model favors Chile, India, Netherlands, South Korea, Sweden, and Taiwan.

As we barrel into the second half of the year, we continue to look for a broadening out of theme outperformance as a sign risk-on has returned. This means narrowing the gap between the "haves" and "have nots".

The latest PMI data continues to confirm our narrative of a tougher 2H for the global economy. Even so, the risk of global recession, which is historically associated with equity bear markets, doesn't appear to be a near-term concern. Growth is strongest among EMs outside of China, while slowing in the U.S. and China. Recession risk is rising in the eurozone.

During July, global stocks outperformed U.S. bonds by more than 375 ba sis points. The Global Allocation model's equity allocation remained above benchmark allocation. The model favors Emerging Markets and the U.S., while holding below benchmark al location for Europe ex. U.K., Pacific ex. Japan, the U.K., Japan, and Canada.

U.S. manufacturing PMIs are showing signs of stabilizing, supporting the soft landing scenario. If this is truly marking the bottom in manufacturing, PMIs rising from low levels have historically been very bullish for equities. But the latest SLOOS report showed that the risk of recession is not off the table.

The Catastrophic Stop model was unchanged from last month and entered August with a fully invested equity allocation recommendation. The Sector model is overweight Consumer Discretionary, Health Care and Utilities. While Information Technology dropped to marketweight, Materials, Industrials, Financials, Consumer Staples, Communication Services, and Real Estate are underweight.

Breadth remained solid with all 11 S&P 500 sectors registering positive returns in the month of July. The Sector model is overweight Consumer Discretionary, Health Care and Utilities. While Information Technology dropped to marketweight, Materials, Industrials, Financials, Consumer Staples, Communication Services, and Real Estate are underweight.

Both ISM and S&P Global U.S. Services PMIs fell more than expected, but still in positive territory. CEO confidence improves amid easing recession fears. Layoff trends remain subdued. Productivity jumps, keeping a lid on unit labor costs. Factory orders surge.

NDR Economic Cycle Infographic updated for Q2 2023, highlighting 12 economic sub-cycles. Real GDP growth picked up in Q2, led by stronger business investment and still solid consumer spending. Inflation fell, even as the labor market remained tight.

The Fixed Income Risk Management model was unchanged from last month and entered August with a risk-on recommendation. The Fixed Income Allocation model is overweight U.S. High-Yield Bonds, U.S. Investment Grade Corporate, Floating Rate Notes, and Emerging Market Bonds. The model is underweight U.S. Long-Term Treasurys, U.S. Treasury Inflation-Protected Securities, and U.S. Mortgage-Backed Securities.

The Bloomberg Barclays U.S. Aggregate Bond Total Return Index was flat in July. The Fixed Income Allocation model is overweight U.S. High-Yield Bonds, U.S. Investment Grade Corporate, Floating Rate Notes, and Emerging Market Bonds. The model is underweight U.S. Long-Term Treasurys, U.S. Treasury Inflation-Protected Securities, and U.S. Mortgage-Backed Securities.

During July, global stocks outperformed global bonds by more than 300 basis points. The model's equity allocation was unchanged and remained above benchmark weighting, with U.S. Large-Caps and U.S. Growth each receiving more than a 15% allocation. The largest fixed income allocations remained U.S. High-Yield and Emerging Markets bonds, both with more than 10% weights.

Uptrend has gained momentum with improving breadth and increased confirmation. But correction risk has risen due to excessive optimism and seasonality, as August-September has been year's worst two-month period. While spiking VIX and other Bear Watch signals would warn of cyclical bear, current evidence of cyclical bull points to substantial upside potential, especially with secular bull intact.

Real yields were becoming overly negative in Japan, resulting in a more flexible YCC policy. Liquidity is the story for this year. BoJ policy normalization is the story for next year. The yen should continue to be the funding currency of choice for carry trades. The U.S. debt downgrade was another example of the gradual erosion of confidence in the U.S. and part of our New World Order theme we outlined over a year ago.

Strong starts to the year are followed by smaller gains the rest of the year, on average. The NDR Cycle Composite suggests a choppier second half, but the typical fiscal moderation may not occur in 2023. The economic narrative may shift from no recession relief to a balance among inflation, Fed, and an uneven economy.

All sectors registered positive returns for the second-straight month. Renewed soft-landing optimism was reflected in rising commodity prices. The sector model remains near benchmark weights.

Thematic breadth improved for the third straight month as the rally expands beyond AI and Tech. Demographic themes including Millennial Spending, Video Games, Sports Betting and India Consumer look to have broken out of two-year downtrends. The market looks poised to take a breather, but we remain prepared to upgrade either way.

ADP payrolls rise more than expected, led by small firm hiring. Light vehicle sales up slightly. Mortgage applications decline amid higher mortgage rates and a persistent housing shortage.

As positive beat rates have gained momentum, rising optimism has sent the Crowd Sentiment Poll to new highs. Forward earnings growth estimates are diverging upward from trailing growth. Earnings bottom bodes well for valuations, with the earnings outlook supported by breadth of positive revisions.

Manufacturing PMIs show continued contraction in the sector, albeit at a slower pace. Job openings fall slightly, but labor demand still strong. Construction spending continues to increase.