Recent Publications

Although the Leading Economic Index (LEI) dipped in January, some of the down side was due to adverse weather and could reverse in the months ahead. Mega-cap tech returns have diverged to begin 2025, and the Mag 7 has trailed the S&P 500. Tariffs are positive for the dollar due to self-correcting mechanisms, consequences of central bank action, and increasing global policy uncertainty.

Alibaba's Q4 earnings report only increased AI hype for China Big Tech.

Deportations are a larger risk than tariffs. Tariffs can be undone. Deportations cannot be. The elimination of the federal positions pale in comparison to the number of people who could be deported. If all illegals were deported, the pool of available labor could approach zero.

Although the LEI fell in January, the six-month indicator breath and momentum improved, consistent with continued economic expansion. CEO confidence jumps in Q1, a positive sign for profits and capex growth. Philly Fed manufacturing activity moderates, while inflation pressures firm. Jobless claims remain contained, indicating a healthy labor market.

Mega-cap tech returns have diverged to begin 2025, and the Mag 7 has trailed the S&P 500. Mag 7 earnings estimates have held up and relative valuations have come down. The S&P 500 may be able to weather a downshift in Mag 7 returns, but the sector level likely cannot.

The new EM/DM Bond Composite should help core-plus and EM bond managers with their risk management. The Composite follows the standard NDR methodology combining fundamentals with trend. Composite evaluated on a mode, signal, and ETF basis.

The majority of similar consolidation phases have ended with a continuation of the bull market. The 1962 cyclical bear is the most notable exception. Earnings revisions and inflation are two of the biggest risks to our overweight equity position.

S&P 500 Technology is up only 2% and the cap-weighted Magnificent 7 (MAG 7) index is up 1% vs. the S&P 500 up 4% to start the year. We estimate the MAG 7 accounted for 54% of AIQ's 24% return in 2024. So how is it that our overweighted AI-focused ETF is up 11% in 2025 while the MAG 7 has underperformed? It turns out that a new cast of characters including China Big Tech (Alibaba, Tencent), two AI superstars (Palantir, AppLovin), as well as one familiar Titan (Meta), have stepped up to drive 2025 returns.

Severe winter weather clobbers U.S. housing construction in January. Falling builder sentiment weighs on the near-term outlook. Elevated mortgage rates remain a drag on mortgage applications and home sales. Architecture billings point to weak nonresidential construction spending in 2025. U.K. inflation jumps to a 10-month high, raising caution around future BoE rate cuts.

Margin debt and stock issuance show building optimism, but not yet at extreme levels. Business and consumer sentiment remain mixed. Short-term sentiment is currently more neutral.

Tariffs are positive for the dollar due to self-correcting mechanisms, consequences of central bank action, and increasing global policy uncertainty. But the ongoing global economic expansion is associated with dollar weakness. The current balance of risks is neutral for the dollar, in line with our models.

Builder confidence in the U.S. declines anew, pointing to weak construction activity ahead. Empire state manufacturing activity improves in February, but optimism about the next six months wanes. Price pressures rise. German investor sentiment jumps, adding to other green shoots in the region. Canadian CPI accelerates on higher energy costs, but likely won't deter BoC from rate cuts.

European sectors, industries, markets and factors which are extremely cheap on a relative basis, tend to outperform over the longer-term. Extreme cheapness tends to be the result of both macro and industry specific factors. We identify sectors and industries to watch and state why a move to a risk-off environment would likely see Consumer Staples stocks and Pharmaceuticals outperform significantly.

We continue to like credit due to its carry. Most indicators remain constructive. But we're noticing some fraying around the edges, as valuations remain rich. Downgrading loans relative to fixed-rate credit over the intermediate term.

Top 10 stocks have declined as percentage of ACWI market cap. Global breadth has been improving. Currently comparable to late 2020 concentration decline and breadth improvement, not 2022 when breadth worsened.

U.S. retail sales drop more than expected, partly due to adverse weather. Underlying trend still solid. Strong utilities output supports U.S. industrial production, as cold weather weighs on manufacturing and mining. U.S. business inventories decline at yearend, but level still near balanced with demand. U.S. import prices rise less than expected, reflecting dollar strength. Eurozone GDP revised up, green shoots ahead. China's lending surges, but overall credit still weak.

Weakness in a few mega-cap Growth stocks has led to an odd combination of mid-cap Growth and large-cap Value strength year-to-date. A review of our recession models reveals a global economy with solid and improving momentum, a positive for global stocks. We upgraded Heath Care (MW), and downgraded Consumer Discretionary (MW) and Real Estate (UW).

Momentum builds for the NDR Japanese Video Game theme as the weak Yen provides a favorable backdrop, companies report strong sales for both hardware and software, and enthusiasm grows for new releases.

Federal payroll downsizing is unlikely to bring substantial savings for the government budget. It may lead to state and local government job cuts, which account for the bulk of the public sector. This is a downside risk to economic growth in late-2025 and 2026.

A strengthening dollar in 2018-19 offset the impact of tariffs on inflation. Conditions today, including higher inflation and inflation expectations, bigger budget deficits, above-potential growth, and an overvalued dollar imply room for tariff passthrough to inflation. The upside risk to inflation will keep the Fed on hold for the better part of 2025.

Upgrading Heath Care (MW), and downgrading Consumer Discretionary (MW) and Real Estate (UW). Maga-cap tech divergences have helped several beaten down sectors outperform to begin 2025. We are watching Financials, Energy, and Technology for potential future position changes.

Led by food and energy, U.S. PPI inflation firms up. U.S. jobless claims remain low, a sign of a healthy labor market. U.K. Q4 GDP unexpectedly increases, outlook mixed. Japan PPI continues to rise robustly, keeping BoJ on hiking path.

Weakness in a few mega-cap Growth stocks has led to an odd combination of mid-cap Growth and large-cap Value strength YTD. Tech sector and stock performance explains much of the rotation, but breadth suggests investors are not abandoning large-cap Growth. We favor mid-caps over large-caps and small-caps and are neutral on Growth versus Value.

Our bullish position is aligned with a cyclical bull that's not yet extreme within a secular bull that's not yet overbought. Outlook supported by trend strength, reversing sentiment, yield downturn, dollar weakening, and a bullish supply/demand balance. Gold has risen with economic uncertainty. Expansionary policy would lend further support.

Stronger-than-expected employment and CPI reports have pushed Fed rate cut expectations out to September. There are several signs that the economy is likely cooling. Data and outlook suggest rate cuts postponed, not derailed.

A review of our recession models reveals a global economy with solid and improving momentum, a positive for global equities. We are, however, cognizant of the downside risks, including political uncertainty, a global trade war, and sticky inflation, which could slow central bank easing. But for now, the weight of the evidence from the data is resoundingly positive.

Thematic breadth has been incredible to start the year. A record 32 themes are outperforming the S&P 500 by more than 1% so far in 2025. In this publication, we highlight five themes that have caught our attention after showing up on our thematic relative strength breakout report. Theme relative strength trends on our radar include Fast Casual Restaurants, Healthcare Technology, Cybersecurity, China Technology, and Gold.

Food, energy, and shelter drive a bigger-than-expected CPI gain in January. Annual inflation remains sticky, supporting the Fed staying on hold for now.

The NDR Daily Trading Sentiment Composite for the S&P 500 is neutral. Many investor surveys spiked after the election, have since declined, but remain in their optimism zones. The American Association of Individual Investors is a notable exception, as is the presidential approval rating.

A modest decline in the NFIB index in January, but level still consistent with robust economic growth.

Federal debt/GDP is expected to keep rising, led by net interest payments. Debt service is the key. When interest costs start to exceed growth, economic risks increase. Credit markets are not solely about federal debt. If you want to be bearish on bonds and see a wider term premium, then you need to see increased credit demand from the private sector.

NDR Economic Cycle Infographic updated for Q4 2024, highlighting 12 economic sub-cycles. Real GDP grew at a robust pace in Q4, led by strong consumer spending. Labor market conditions have normalized. Most sub-cycles reflect continued expansion, despite still-high interest rates.

Big Mo Tape signal is still on a buy as is the Moving Average Model. Watching the Leading Indicator Model for stocks, also still on buy signal. But prices are in a historic bubble.

Global growth took a breather at the start of the year, accord ing to the latest global PMIs. All sectors but Technology registered gains in January. Financials has had the best start to Q4 earnings season while Staples has had the worst. We shifted our absolute recommendation for European stocks from bullish to neutral.

Job creation still strong, following benchmark revisions. Unemployment rate dips in January. Partly due to weather-related industry mix shift, wage growth remains firm. This report, combined with increased trade and economic policy uncertainty, and rising consumer inflation expectations, supports the Fed staying patient for now.

Cloud sales growth decelerated year-over-year for the "Big 3" Tech companies, but we believe it is too early to declare a sales peak. All three complained of capacity constraints and will ramp up capex in FY'25 to capitalize on the current AI opportunity.

Despite the ballooning federal budget deficit, personal consumption expenditures have by far led U.S. real GDP growth. An alternate measure that includes government transfers and tax incentives shows an even smaller impact on the economy. We find that fiscal spending is a contrarian indicator for equities. Net interest payments have accounted for the surge in the federal deficit.

The Catastrophic Stop model entered February fully invested. The International Equity Core model is overweight Germany, Switzerland, Japan, and Canada while underweighting China, Australia, France, and the U.K. The Explore model favored Italy, Malaysia, Peru, South Africa, and Thailand.

The All-Country World ex.-U.S. Total Return Index gained over 400 basis points in January. The International Equity Core model is overweight Germany, Switzerland, Japan, and Canada while underweighting China, Australia, France, and the U.K. The Explore model favored Italy, Malaysia, Peru, South Africa, and Thailand.

During January, global stocks outperformed U.S. bonds by more than 280 ba sis points. The Global Allocation model's equity weighting remains above benchmark allocation. The model has an above benchmark weighting for Canada, Japan, the U.K., and U.S., while holding below benchmark allocations for Europe ex. U.K., Emerging Markets, and Pacific ex. Japan.

During January, global stocks outperformed global bonds by more than 280 ba sis points. The model's equity allocation remains above benchmark weighting, with U.S. Large Caps, U.S. Growth, and U.S. Small Caps each receiving more than 15% allocation. The largest fixed income allocations were Emerging Market bonds and U.S. High Yield, both with more than 8% weights.

The Fixed Income Risk Management model entered February with a fully invested allocation to fixed income sectors. Emerging Market bonds, U.S. Floating Rate Notes, U.S. High Yield, U.S. Investment Grade Corporate, and U.S. Treasury Inflation-Protected Securities are above benchmark weight. International Investment Grade dropped to benchmark weight, while U.S. Long-Term Treasurys and U.S. Mortgage-Backed Securities remained below benchmark weight.

After dropping in December, the Bloomberg Barclays U.S. Aggregate Bond Total Return Index rebounded and was basically flat in January, up only 0.5%. Emerging Market bonds, U.S. Floating Rate Notes, U.S. High Yield, U.S. Investment Grade Corporate, and U.S. Treasury Inflation-Protected Securities are above benchmark weight. International Investment Grade dropped to benchmark weight, while U.S. Long-Term Treasurys and U.S. Mortgage-Backed Securities remained below benchmark weight.

The Catastrophic Stop model entered February with a fully invested equity allocation. Financials, Health Care, Industrials, Consumer Discretionary, and Utilities are above benchmark weight. Energy improved to benchmark weight while Information Technology, Communication Services, Real Es tate, Materials, and Consumer Staples are below benchmark weight.

After a small pullback in December, the S&P 500 Total Return Index rebounded about 2.8% in January. Financials, Health Care, In dustrials, Energy, Consumer Discretionary, and Utilities are above benchmark weight. Informa tion Technology, Communication Services, Real Estate, Materials, and Consumer Staples are below benchmark weight.

Slower U.S. productivity growth in Q4 pushes up ULC, consistent with stalling disinflation. U.S. layoff plans and jobless claims still subdued, as the labor market remains healthy. Germany's machinery orders surge, suggesting possible light at the end of the tunnel.

Powell views policy as meaningfully restrictive. Real rates remain above neutral. Banks continue to tighten lending standards, but financial conditions remain easy. These conditions won't last forever. Rolling over maturing loans at higher rates is restrictive. We should see more of that this year.

The NDR U.S. asset allocation model shifted to more overweight stocks on its February update. While the news flow has removed frothy optimism, earnings season has been solid, especially amid small-caps. A rotation out of mega-cap Growth appears to be forming, but our models have not confirmed; remain overweight mid-caps.

With the S&P 500 setting a record high on January 23, this was a risk-on month and 35 of 48 (73%) themes outperformed. Technology led the way. Nvidia's DeepSeek pain was Software's gain, as investors speculated AI development costs may go down. Still, a slowing in Big Tech cloud revenue could lead to a valuation correction, and we have noticed more defensive positioning the past two weeks.

Global growth took a breather at the start of the year, according to the latest global PMIs. Manufacturing moved back into expansion territory, but services growth slowed. Businesses for now seem unfazed and little prepared for tariffs. Most of the world's largest economies continued to show expansion, led by India and the U.S.

All sectors but Technology registered gains in January. Encouraging earnings reports and strategy updates from several Mag 7 components alleviated some of the DeepSeek concerns for investors. Financials has had the best start to Q4 earnings season while Staples has had the worst.

U.S. services PMIs decline, but still in solid expansion territory. Price pressures mixed. ADP payrolls surprise to the upside, as labor demand remains healthy. U.S. trade deficit widens substantially in Q4, as tariff expectations and a strong dollar boost imports. U.S. housing market still facing a shortage, which supports home price growth. Japanese wages show continued progress, supporting BoJ normalization.

If Tariff Tantrum turns out be more reminiscent of the Taper Tantrum, negative market impact should be limited. With forward earnings growth, beat rates and earnings revisions holding up, uptrend should withstand worsened valuations. But if tariffs produce a trade war that leads to rising yields and a worsening macro and earnings outlook, our model should call for cutting equity allocation.

The NDR Daily Commodity Sentiment Model is reversing from excessive optimism. Broad commodity excessive optimism is not confirmed by gold, oil, or copper. Though a sharp correction appears unlikely, a prolonged or escalating trade war may dampen gains.

Job openings decline, as hires pick up at yearend. Layoffs remain low, a sign of a balanced labor market. Light vehicle sales slump in January, mostly due to adverse weather. Factory orders decline, but signs emerge of firmer growth in early 2025.

Reducing U.K. from an overweight 7% to a marketweight 4%. Increasing overweight on Europe to 35% from 32%. Gilt market has stabilized but fiscal challenges remain. Peripheral debt continues to outperform.

Shifting our absolute recommendation for European equities from bullish to neutral. A strong January combined with reasonable valuations, and sentiment recovering from excessive pessimism, is positive for European equities. But the weight of the evidence and high trade uncertainty, supports a neutral tactical outlook for European equities.

U.S. Manufacturing PMIs show stronger factory activity and price pressures in early 2025. Tariffs threaten the growth outlook. U.S. construction spending up more than expected at yearend, but growth rate still subdued. Eurozone inflation unexpectedly accelerates, but unlikely to alter ECB's easing path.

The top-level equity allocation remains at 72%. Global equity market breadth improved, while global economic sentiment weakened. U.S. Large Caps, U.S. Growth, and U.S. Value each have over 13% weightings.

Breadth and trend measures have improved over the past few weeks. The bullish trend remains intact. Not all breadth issues have been resolved and risk remains high from bubbly valuations.

Solid income and spending growth keep core PCE price pressures elevated. Employment costs pick up in Q4, a sign that core inflation may struggle to come down further. Regional manufacturing activity still weak but stabilizing. State economic conditions imply low recession risk.

We maintain a marketweight allocation to China based on our EM Scorecard, as weak valuations continue to offset strong technicals. Our China Rally Watch Report remains bullish, though recent weakness in thrust indicators warrants caution.

Real GDP increased at a slower-than-expected 2.3% annualized rate in Q4, as capex and inventory invest ment declined. Fed policy remains "meaning fully restrictive." Monday's market move was more of a rotation than a selloff.

The VanEck Rare Earth and Strategic Metals ETF (REMX) is experiencing its best sustained bullish breadth in two years. However, it will take work on the part of rare and critical mineral themes to convince us their three-year slump is over. Continued breadth improvement and exceeding fourth quarter highs are two first steps.

Tariff threats are worrying trading partners. But markets appear to be relatively sanguine. Equities making new highs. EM spreads have hit pre-GFC lows. Commodities are rising. The U.S. dollar is faltering. Although markets are not infallible, we always respect their message, especially when it is widespread. As long as this is the case, we wouldn't be too quick to turn bearish on the markets.

Strong consumer spending keeps the U.S. economy going. PCE price pressures edge up, giving the Fed a pause. Eurozone economy stagnates, keeping the ECB in easing mode. U.S. jobless claims decline, as labor market remains strong. Pending home sales slump, pointing to continued weakness in existing home sales.

For most sectors, returns are expected to downshift in the decade ahead. Valuations suggests a greater mix of cyclical and defensive leadership over the next 10 years compared to the last. The degree that AI investment translates to earnings will be a key driver for Growth sectors.

Upgrade from underweight emerging market allocation would require EM Composite improvement. EM prospects would also improve with upside broadening and strengthening EM currencies. As EM relative strength is a Risk-Off proxy, global market weakness could help EM outperform.

Monday was more of a rotation than a selloff. The NDR U.S. asset allocation model continues to favor stocks. The secular risks to the market and Growth stocks have not been eliminated.

Since the Supreme Court overturned the Professional and Amateur Sports Protection Act in 2018, the Sports Betting landscape has been rapidly evolving. As we approach Super Bowl LIX, we look at Roundhill's Sports Betting & iGaming ETF (BETZ), which has gained 3% relative to the S&P 500 year-to-date. Strong growth in both the amounts wagered and gross revenue for sportsbooks, along with the potential of future state legalizations keeps the theme on our radar.

Policy remains "meaningfully restrictive." The opening paragraph describing current economic conditions reads stronger, but Powell downplayed the language changes. I am sticking with my call for three rate cuts this year starting in March.

Advance goods trade deficit hits a record at yearend, a likely drag on Q4 GDP growth. Mortgage applications remain lackluster, as elevated mortgage rates weigh on housing market activity.

The NDR Daily Trading Sentiment Composite falls to near-extreme pessimism. The VIX jumps as does "uncertainty" breaking complacency. But valuation/positioning bubble remains.

Consumer confidence falls to a four-month low, but still range-bound longer term. Inflation expectations pick up. Durable goods orders decline, dragged down by Boeing. But core orders look better. Richmond Fed manufacturing activity showing signs of stabilization. Existing home prices still rising, although the y/y rate has normalized to pre-pandemic.

NDR has held a negative view on China the past few years. From an economic perspective, China faces many challenges. From a markets' perspective, China has been a disaster. Trump wants to play "Let's Make a Deal." Chinese Tech stocks tick most of the boxes in our "Ten Rules of Research."

U.S. new home sales up slightly in December, but still range-bound longer-term. Chicago Fed National Activity Index shows growth strengthened at yearend. German Ifo expectations index dips, as business confidence remains weak.

While cyclical bull maturing, it has more potential with secular bull intact. Cyclical bulls within secular bulls relatively big and long. Cyclical bears within secular bulls relatively short and shallow.

Flash U.S. Composite PMI declines to a nine-month low. Inflation pressures intensify. Most flash PMIs outside of the U.S. rise. Japan's CPI accelerates before BoJ rate hike. U.S. existing home sales rise in December, but close the weakest year since 1995. Broad-based decline in U.S. consumer sentiment, led by worsening expectations about the economy and inflation. U.K. consumer confidence slumps, suggesting weak spending ahead.

Although stocks are still in a secular bull market, we project weaker global equity returns and stronger fixed income re turns the next decade. A strong start to Q4 earnings season from the big banks provided a much-needed boost for Financials. Hitting the debt ceiling on Tuesday doesn't relieve us from our obligations. A default would damage the credit worthiness of the U.S. and its status as a reserve currency.

Moving to an anti-immigration policy in the U.S. could create a massive labor shortage problem. Could automation be part of the solution?

Most economic data closes 2024 on a strong note. Leading indicators and our ETM point to continued growth in early 2025, supporting equities. Colder-than-normal weather and California wildfires may distort the positive trend but likely won't break it.

President Trump's energy agenda unlikely to alter supply in the near term. However, proposed tariffs do pose a threat to demand. Given resilient global growth, low inventory levels, and neutral sentiment, we remain bullish.

A strong start to Q4 earnings season from the big banks provided a much-needed boost for Financials. Loan growth has remained weak, but several indicators suggest a potential pickup in 2025. A return to higher inflation would be a concerning development for the sector.

RO/RO highs reached with bullish breadth indicated by diffusion indices. Consistent message from ACWI Growth/Value uptrend. Global Balanced Account Model supports overweight equity allocation.

A sharp drop in U.K. business sentiment, cementing BoE easing path. U.S. jobless claims still subdued, reflecting labor market strength.

The debt limit was hit on Tuesday. The Treasury is using extraordinary measures to avoid breaching the limit. The government will be operating under these measures for several months. Hitting the debt ceiling doesn't relieve us from our obligations. A default would damage the credit worthiness of the U.S. and its status as a reserve currency. Trump has an opportunity to eliminate this relic once and for all.

Investors have tended to look past the negative impact of a strong dollar on earnings. High valuations and slowing EPS growth are bigger issues currently. The rally has triggered a key breadth signal.

We see several similarities between the setup in 2025 and what we saw in 2022 including market divergences, Big Tech driving market returns, expected slowing of Big Tech earnings growth, and growing inflation concerns. Big Tech does not have to follow the same script as 2022, however, as the AI investment cycle may very well last much longer than the Covid investment cycle. We highlight key charts to watch including Big Tech vs Energy and capex growth for Hardware and Software.

China met its 2024 growth goal, but it faces many long-term challenges ahead. Some, such as demographics, are unfixable, while others, such as China's real estate glut, are making progress. The growth trajectory is still definitively to the downside, but how much depends on when and if the fixable factors are addressed.

LEI declines slightly in December. But trend improvement points to continued U.S. economic growth ahead. Our ETM confirms. Architecture billings show renewed weakness, a downside risk to the outlook for nonresidential construction spending.

We update NDR's Capital Market Assumptions for the next decade. We revisit five major themes that will impact the global economy and the investment world. Although equities are still in a secular bull market, we project weaker global equity returns and stronger fixed income returns in the next ten years compared to the prior decade.

U.S. Dollar sentiment reversing from optimism extreme. Currency and gold sentiment reversing from pessimism extremes. Declining bond yields would be positive for gold while narrowing differentials would be negative for the dollar.

Germany's ZEW survey suggests more economic weakness ahead, despite broader improvement in the eurozone. U.K. job market weakens, while wages accelerate, but won't deter BoE from easing.

A range bound German bond yield is consistent with a neutral allocation to European Value versus Growth. Divergences in yields across the eurozone economies have underpinned the relative performance of their respective equity markets. Fundamentals favour Spain over Italy, while U.K. smaller companies look short-term oversold.

Big Mo Tape, a key breadth gauge, rebounded last week. After quick reversals, S&P 500 returns have been mixed one month later and above average 12 months later. Watch the broader Fab Five Composite to see whether recent mixed signals are resolving themselves bullishly or bearishly.

We use a macro approach for valuing 10-year sovereign securities. The formulations were challenged by the pandemic, the inflation spike of 2021-22, and the phaseout of Libor and related contracts. We tweaked the models to use forward-looking data. The U.S. and U.K. are relatively undervalued, while Germany and Japan are relatively overvalued.

U.S. industrial production up more than expected at yearend, led by energy. Housing starts rebound, but trend still subdued. China's economy meets 2024 growth goal, but 2025 will be more difficult. U.K. retail sales unexpectedly fall, adding to more signs of slowing.

The CPI and PPI reports are steps in the right direction in relieving recent inflation fears. Extended easing cycle pauses and the start of tightening cycles have been bearish for stocks and consistent with greater defensive leadership. Amid policy uncertainty and slow disinflation, we expect the Fed to pause this month and deliver future rate cuts at a slower pace than last year.

U.S. retail sales soften slightly in December, but Q4 still strong, boosting GDP growth. Initial jobless claims rise more than expected, but still range-bound, as labor market remains healthy. Philly Fed manufacturing activity jumps. Builder confidence up slightly, but level still implies weak housing starts. Import price inflation ticking up, led by fuel and food prices. U.K. economy grows less than expected in November, supporting BoE easing path. Brazil monthly GDP barely expands in November amid tighter monetary policy.

Crypto investors have several things to look forward to in the coming weeks including a crypto-friendly administration and strong February seasonality for Bitcoin.

Last week's employment report blowout saw equities slump, contrary to the historical norm of large upside surprises being good for equities. Occasionally good news is bad news, especially when it could impact inflation and monetary policy in a hawkish way. This typically means smaller gains in equities in successive months, but recession is highly unlikely.

EM Scorecard has significantly outperformed the benchmark since going live in 2014. Scorecard favors Latin American markets, except for Mexico, which is an underweight. Potential U.S. tariffs and geopolitical threats pose additional risks for Mexico.

Our breadth measures of 10-year yield increases are at or approaching 100%. Broad-based increases in 10-year yields do not necessarily point to economic weakness. But the implications for equities have been more subdued.

Extended easing cycle pauses and the start of tightening cycles have been bearish for stocks and consistent with greater defensive leadership. Conclusions of tightening cycles have been much more bullish. The evidence sides with the cyclical group of sectors from now.

New highs in gilt yields this week unconfirmed by the U.S., Germany. Yield movements exaggerated by structural factors. Despite the selloff, this is no Liz Truss moment. The BOE is likely to cut rates next month. The gilt market has been underperforming. We will look to reduce exposure into this rally.

The CPI and PPI reports are steps in the right direction in relieving recent inflation fears. The reversal in bond yields is key to the stock market's rebound. We are watching for a sustained rally beyond a day or two to prevent a reduction in our current max overweight position in U.S. stocks.

A quick look at correlations of our recommendations shows our Consumer recommendation (IEDI) has a negative correlation to our Commodity recommendation (USO). The negative correlation makes sense as higher commodity prices and inflation negatively impact consumers and consumer-related companies. We can watch Consumer vs Commodity sector trends to get a read on inflation trends. The bottom line is that rising/falling inflation expectations may force us to close one of these current recommendations.

Lower U.S. core CPI inflation at yearend, but little change over the past six months. Fed expected to pause in January. Mortgage rates keep trending up, weighing on mortgage application trends. Empire manufacturing index slides back into contraction territory. U.K. inflation slows more than expected, supporting gradual BoE rate cuts. German economy contracts in 2024, outlook still dire.

Stocks look high versus money supply. Other measures of cash are low. Short-term sentiment is more pessimistic, but more may be needed with Fab Five Stock market model turning bearish.

The BOJ is the only major developed central bank that is expected to raise rates this year. Inflation above 2% is becoming sustainable. Faster real wage growth and higher interest income should help the domestic economy, especially the banks. The yen is massively undervalued.

Softer-than-expected PPI, but inflation pressures still lean toward a cautious Fed in 2025. Small business optimism jumps, on expectations Trump policies will boost growth.

Improving global leading indicators and bullish risk indicators continue to confirm a Cyclical sector bias in European equities. And while we see signs that Cyclical sectors have become overbought, technical evidence still supports further relative upside. We list a series of indicators we are watching which could signal to become more Defensive.

The S&P 500 has been rising as Big Mo has been falling. Extended negative divergences are rare but not impossible. Will the current divergence continue? Tech relative trends may hold the answer.

Nonfarm payrolls rose more than expected at yearend and the unemployment rate slid to 4.1% Wage growth eased slightly, but has been little changed over the past several month. Consumer inflation expectations jumped, weighing on sentiment. These reports practically confirm that the Fed will not cut rates at its January meeting.

Tougher comps, elevated estimates, and lower beat rates imply a tougher earnings environment in 2025. December turned risk-off after the Fed indicated only two rate cuts were likely next year, causing the S&P 500 to fall 2.5%. Downside risks from a global economic standpoint are emanating from political uncertainty and a possible trade war could significantly hinder growth in 2025.

Starting off the new year strong, the NDR Trump Trade Index rebounded to a new high, with diversified financials in a good position to benefit from a steeper yield curve and potential deregulation.

It is taking a long time for rent growth to slow to levels consistent with 2% inflation. Construction delays and sticky house price growth have inhibited the slowdown. With backlogs receding and house price trends cooling, we could see some downside surprises to the inflation data in 2025, which would bode well for financial assets such as bonds.

More Chinese stimulus is needed to kickstart the economy. German industrial production rises more than expected, but outlook weak. Japanese wage growth back to 1990's levels, allowing room for more BoJ normalization.

The global economy ended the year on solid footing, according to the latest global PMIs. Supported by leading indicators and other macro data we follow, this reinforces our overweight position in global equities. But downside risks emanating from political uncertainty and possible global trade war could significantly hinder growth in 2025.

Current weight of the evidence supports bullish gold position and overweight equity allocation. Broad bond yield advance would threaten both positions. Gold and equity uptrends well intact for now.

Tougher comps, elevated estimates, and lower beat rates imply a tougher earnings environment in 2025. As Mag 7 EPS growth slows from extremely high levels, the rest of the market needs to make up the difference. Soaring interest expenses could make for difficult capital allocation decisions moving forward.

December turned risk-off after the Fed indicated only two rate cuts were likely next year, causing the S&P 500 to fall 2.5%. Outperformance was weak with only 12 of 48 (25%) themes outperforming the S&P 500, the third-worst breadth in 11 months. Tech was a bright spot, accounting for nine of the 12 outperforming themes. More than 50% of Tech themes outperformed (4th straight month), the best since 2020.

For long-term, value-oriented investors, we recommended buying the 10-year Treasury around 5.00% +/- 25 bp. The yields rise is all about the term premium. We attribute the rise in the term premium to expected changes in Treasury supply, primarily due to upcoming changes in fiscal policy. Trading conditions are conducive for a reversal.

Initial jobless claims in the U.S. drop to lowest level in nearly a year, even as ADP payrolls growth slows. Indicates a cooling, but still healthy, labor market that will keep the Fed cautious in early 2025. Mortgage rates back up to near 7%, weighing on mortgage applications and expectations of home sales in the near-term. Used car prices normalizing and no longer a source of disinflation for the CPI. Wholesale inventories dip and will likely be a drag on U.S. Q4 GDP growth. German manufacturing orders slump, dampening economic outlook. French consumer confidence slides to lowest level in over a year.

ETF inflows have been among the highest on record over the last two months. ETF flows are seasonal, with the strongest weeks clustered from November to January, especially after elections. When ETF flows have reversed lower from extremely high levels, S&P 500 returns have tended to be below average for several months.

The S&P 500 finished the year up more than 20% for the second-straight year despite falling 2.5% in December. Returns for both cyclical and defensive Value sectors were much worse than the overall market. Several of the top-performing sectors post-election faded in December, including Energy and Financials.

Job openings increase more than expected, but hires and quits decline. Mixed signals to keep the Fed cautious in early 2025. ISM Services PMI shows solid services growth at yearend. Cost pressures jump. U.S. trade deficit widens in November and will likely be a drag on Q4 GDP growth. Eurozone inflation accelerates, but likely won't alter ECB easing path.

There has been a weak positive correlation between European equity returns in January and the remaining 11 months of the year. A similar correlation can be found using the first five trading days of the year. A lack of momentum in December, combined with mixed indicators across a range of variables suggests a neutral outlook for European equities. But risk indicators, leadership trends and seasonality, mean that we remain bullish.

Risk #1 - Inflation expectations break out to the upside. Risk #2 - The Fed is too complacent on unemployment. Risk #3 - USD remains strong.

The Catastrophic Stop model entered December fully invested. The International Equity Core model is overweight Japan and Switzerland, while underweighting China, Germany, France, and the U.K. The Explore model favored India, Peru, Mexico, South Africa, and South Korea.

Led by strong services activity, the S&P Global U.S. Composite PMI shows solid economic growth at yearend. Price pressures remain contained. Vehicle sales finish 2024 strong, led by light trucks. Factory orders weaken, led by durable goods.

The All-Country World ex.-U.S. Total Return Index declined over 190 basis points in December. The International Equity Core model is overweight Japan and Switzerland, while underweighting China, Germany, France, and the U.K. The Explore model favored India, Peru, Mexico, South Africa, and South Korea.

During December, global stocks underperformed U.S. bonds by more than 70 basis points. The Global Allocation model's equity weighting remains above benchmark allocation. The model has an above benchmark weighting for Canada, Japan, and the U.S., while holding below benchmark allocations for Pacific ex. Japan, Emerging Markets, Europe ex. U.K., and the U.K.

During December, global stocks underperformed global bonds by more than 18 ba sis points. The model's equity allocation remains above benchmark weighting, with U.S. Large Caps, U.S. Growth, and U.S. Small Caps each receiving more than 15% allocation. The largest fixed income allocations were Emerging Market bonds and U.S. High Yield, both with more than 8% weights.

The Fixed Income Risk Management model was steady last month and entered January with a fully invested allocation to fixed income sectors. Emerging Market bonds, U.S. Floating Rate Notes, U.S. High Yield, and International Investment Grade are above benchmark weight. U.S. Investment Grade Corporate, U.S. Long-Term Treasurys, and U.S. Mortgage-Backed Securities, and U.S. Treasury Inflation-Protected Securities are below benchmark weight.

The Bloomberg Barclays U.S. Aggregate Bond Total Return Index was down -1.6% in December. Emerging Market bonds, U.S. Floating Rate Notes, U.S. High Yield, and International Investment Grade are above benchmark weight. U.S. Investment Grade Corporate, U.S. Long-Term Treasurys, and U.S. Mortgage-Backed Securities, and U.S. Treasury Inflation-Protected Securities are below benchmark weight.

The Catastrophic Stop model was steady last month and entered January with a fully invested equity allocation. Financials, Information Technology, Communication Services, Consumer Discretionary, and Utilities are above benchmark weight. Real Estate, Materials, Energy, and Consumer Staples are below benchmark weight.

After a strong upward move post-election, the S&P 500 Total Return Index dropped -2.38% in December. Financials, Information Technology, Communication Services, Consumer Discretionary, and Utilities are above benchmark weight. Real Estate, Materials, Energy, and Consumer Staples are below benchmark weight.

After a Q1 scare, disinflation never reversed, leaving the primary driver of the bull market in place. The Mag 7 led broad-based gains, resulting in record concentration and valuations high versus history and Europe, but not versus bonds. Skepticism thwarted incumbents globally, but investors grew increasingly bullish on stocks, with record flows and allocations.

Breadth diverging from uptrends in major benchmarks. After abundant record highs, records tend to recede with more subdued market performance. Weak Decembers have been followed by recoveries during secular bulls, more weakness during secular bears.

The ISM Manufacturing PMI surprises to upside, but still in contraction territory at yearend. New orders and production pick up, while employment falls. Cost pressures remain muted.

We upgraded commodities from neutral to bullish. The S&P 500 posted back-to-back 20% gains for the fifth time on record while logging 57 record highs in 2024. Growth sectors led stocks higher for the second-straight year, but divergences developed in Q4.

Upgrading commodities from neutral to bullish. The NDR Commodity Model moved to its most bullish monthly reading since May 31. We upgrade our view to align with the model. USD weakness would add conviction to our view.

When the 10-year Treasury yield peaked last April, we saw ETF flows to TLT improve about six weeks later. Not only is there a lack of TLT buying currently, it looks like significant selling is being fueled by a move to the short end of the curve.

Immigrant labor is most heavily represented in agriculture, construction, leisure/hospitality, and professional/business services. These industries could face rising labor costs from mass deportations and a potential squeeze on profits. More generally, tighter labor markets from deportations create an upside risk to wage growth and inflation.

The S&P 500 posted back-to-back 20% gains for the fifth time on record while logging 57 record highs. While most asset classes gained, relative strength in large-cap Growth meant U.S. stocks outperformed bonds, cash, commodities, and international equities. Exceptions include long bonds, Materials sector, and some large emerging markets.

Our forward-looking equity risk premium is one basis point away from favoring 10-year Treasurys. But our preferred ERP measure using Baa corporate yields still has a 50 bp cushion before credit is favored. Allocators should continue to favor equities over bonds. It was the third worst December for Treasury bond futures going back 45 years. Repo market tightened up toward yearend.

Global Stock/Bond Composite decline not warranting equity allocation cut. Rally Watch aggregate downtrend hasn't been followed by bear market warning from Bear Watch aggregate. Risk-On/Risk-Off and Growth/Value ratios also indicate that it's not yet time to cut back.

A decline in jobless claims in final week of the year shows labor demand remains healthy. S&P Global U.S. Manufacturing PMI comes in above the flash estimate but still in contraction territory. Construction spending growth decelerates, led by the nonresidential sector. Rising mortgage rates sap mortgage application activity.

There are many ways that Japan's economy has changed in recent years, especially on the inflation front. But many elements remain unchanged, held down by poor demographics. There's limited evidence that economic change has impacted Japanese equities given that the long-term narrative remains uncertain. Instead, the yen has been the predominant driver of cyclical performance.

As we analyzed the top 10 themes in 2024, there were really three broad themes that stood out in 2024 - Consumer, Tech Titans and Crypto. In this publication we take a top-down look from the three broad themes to the largest ETFs and stocks that drove their returns. The launch of Bitcoin ETFs, bullish comments by Trump at a crypto conference, and Trump looking to appoint a crypto-friendly SEC chair all helped Bitcoin soar over 100% and make crypto-related the top broad theme for 2024.

Economic growth narrowed across states in November, but recession risk remains low. Existing home price growth has normalized to pre-pandemic rates.

Investors were very optimistic about stocks in 2024, showing higher risks going into 2025. The high optimism was similar to 2021, which marked the end of a cyclical bull market. Investors are highly allocated to stocks.

Factory activity improves in Texas, but sinks further in the Chicago region. Most other regions are also in contraction, confirming broad manufacturing sector weakness at yearend. Pending home sales surprise to the upside, pointing to a sustained modest pickup in existing home sales in the near-term.

The top-level equity allocation remains at 72%. The model shifted 7% allocation from fixed income to cash. U.S. Large Caps, U.S. Growth, and U.S. Small Caps each have over 13% weightings.

The top 10 stocks account for a record high 39% of the S&P 500. The average stock has done fine, up 8% YTD versus the average of 6%. Recent lower highs in several breadth gauges suggest risks are rising.

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

Japanese data for the end of the year, ranging from inflation to the consumer, indicate that the economy is poised for another BoJ rate increase in early 2025. U.S. jobless claims point to normalizing labor market. U.S. goods trade deficit widens amid resilient economy.

Sentiment for Healthcare Services stocks is highly negative, but rising healthcare services PCE has been bullish for the sector. Will sentiment soon start to reverse?

Poor December breadth has had limited impact on intermediate-term technical indicators. Market-based macro indicators have turned negative, but they could be reflecting year-end positioning more than economic foreshadowing. The longer market-based macro conditions are weak, the more our disciplined approach would dictate a reduction in equity exposure.

Extreme pessimism suggests that Europe/U.S. underperformance is reaching its limits, at least in the short-term. But macro and fundamental tactical indicators favour the U.S., as do longer-term technical indicators. We still recommend a U.S. overweight and explain what would change our view.

Investor sentiment has been excessively optimistic about stocks. But Macro sentiment has been cautious until now. And valuation and positioning very bubbly.

On a relative basis, the current cyclical bull market has been one of the best on record for Technology and Communication Services. For Energy, Industrials, Discretionary, Staples, Financials, and Utilities, it has been one of the worst. For Materials, Health Care, and Real Estate, it has been the worst.

Despite the fall in confidence, the reading is still consistent with ongoing economic expansion. New home sales rebound, following hurricane-induced slump. Durable goods orders fall more than expected, but capex grows. National activity index points to improving economic activity.

Assets in MMFs were not the bullish fuel for bonds and stocks that many had expected, expanding by $750 billion in 2024. Cash handily beat bonds. Intermediate-term TIPS offer a reasonable alternative to cash for 2025 with nominal returns expected to exceed 5.00%.