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Despite solid income and spending growth, PCE inflation came in below expectations. Services inflation remains sticky, keeping the Fed on a slower rate cut path. Consumer sentiment jumps at yearend. Japan's CPI accelerates, setting stage for more BoJ rate hikes. U.K. retail sales confirm softening in the economy.

Total single-family home sales finally turned positive (Y/Y %) after 39 months of declines, however, the recent rise in rates has kept home-related stocks under pressure. If current inflation fears prove unfounded, it could be a great buying opportunity.

In recent years, the native-born labor force has fallen compared to pre-pandemic, due to early and more widespread retirement. Foreign workers have made up for the slack. This has positive implications for potential growth and long-term equity performance. But proposed deportations could shave 3.2% off of the labor force, drastically reducing potential growth.

U.S. existing home sales and prices rise in November, amid strong demand and some improvement in inventory. Leading economic index increases for the first time since 2022, pointing to continued expansion. Initial jobless claims come down, as the labor market remains healthy. Philly Fed factory activity slumps, a sign of manufacturing weakness nationwide. Q3 real GDP revised up, but profits soften. European confidence remains weak, weighing on the outlook.

U.S. Dollar Index breakout has lacked confirmation from breakdown in other major currencies and gold. Confirmation also lacking among interest rates, rate differentials, and emerging market currencies. While dollar optimism excessive, pessimism extreme on currencies and gold. We remain bullish on gold and neutral on the dollar, yen, euro and pound.

Removing 2% from Energy and adding 1% to both Technology and Communication Services. Energy has given back all its post-election gains and has broken down on a relative basis. Crude prices have remained rangebound and we could re-upgrade the sector on better price action and model confirmation.

The core eurozone economies are struggling, while many of those countries in the periphery are outperforming on numerous levels. While this has helped narrow yield spreads, equities in the region haven't outperformed. Partly to blame is the long-term outlook for all the eurozone economies, which remains subdued due to weak demographic and productivity trends.

Decliners have exceeded advancers for 12 consecutive days for only the third time since 1972. If breadth does not improve during the bullish Santa Claus Rally period, it would warn the cyclical bull is at risk. Excessive optimism and macro risks add to breadth concerns.

We move Video Games to overweight, recommending the Global X Video Game & Esports ETF (HERO) relative the SPDR S&P 500 (SPY), with a 12-month, 22% relative upside price target.

The median participant sees 50 bp of rate cuts in 2025, with a longer run rate of 3.0%. Policy remains restrictive. In a technical adjustment, the FOMC reduced the RRP rate by 5 bp relative to the range. The SEP showed higher inflation expectations with greater uncertainty.

U.S. housing starts approach pandemic lows, but there are reasons for optimism next year. Architecture billings trend points to a pickup in nonresidential construction spending in 2025. Mortgage purchase applications improve but to a still low level, a sign that home sales will remain subdued. U.K. inflation accelerates, complicating BoE policy path. Eurozone inflation revised lower, allowing room for more ECB easing. Japan exports rise, led by Asia.

After peak in earnings sentiment, consistent with other signs of excessive optimism, increasing earnings pessimism is a market risk. Earnings beat rate momentum and earnings revisions are broadly negative across regions and sectors. Beat rates holding up better for major global Value sectors than biggest Growth sectors. ACWI Growth/Value ratio downturn would be consistent with market decline.

U.S. retail sales surprise to the upside, as consumer strength continues to drive overall economic growth. Industrial production still shrinking. Builder confidence unchanged, pointing to subdued housing starts in the near-term. Business inventory-to-sales ratio holds steady, a sign of balanced supply/demand conditions. German business confidence falls, but investors more optimistic. U.K. wage growth unexpectedly accelerates, complicating BoE easing path.

The flash U.S. Composite PMI rose to highest level since early 2022, led by robust services growth. Manufacturing, however, remains in the doldrums. Flash PMIs pick up elsewhere, confirming strength in the global economy. Chinese consumer disappoints, setting stage for more stimulus.

The Fed will reduce rates by 25 bp this week and will pause sometime in Q1. Policy is restrictive, so the Fed will want to proceed carefully as it approaches the neutral rate. Look for the RRP to match the bottom of the fed funds target range. Too much optimism on bonds and stocks.

The Leading Indicator Model for stocks remains bullish. However, there is some deterioration in the model from Utilities and Financials relative strength and short-term momentum. The economic trend and interest rates are supportive of stocks.

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

The Nasdaq composite has hit 37 new all-time highs (ATHs) so far this year, but it may take a dot-com type run to keep the new ATHs coming.

Firmer U.S. import prices round the picture of broad disinflation stalling. Supports a slower pace of Fed rate cuts in 2025. More signs of softness in the U.K. economy. Japan's business confidence continues to improve, making room for BoJ rate hike.

The wealth effect is a big part of why economists have underestimated consumption and GDP. Net worth is taking on an increasingly larger role in the economy. As long as stocks remain buoyant, the economy should do well. But should equities enter a bear market sometime in 2025, the economy could take a bigger-than-expected hit.

Producer price inflation surprises to the upside. Supports expectations of slower Fed rate cuts in 2025. Jobless claims increase, a sign of cooling labor market conditions. India's inflation eases, teeing up RBI rate cut.

With VIX reflecting complacency, reversal would be a warning. Current outlook supported by model and breadth improvement, outperforming Growth and Risk-On indices, and defensive retreat. Yields not currently a threat; watch correlations if they rise.

The NDR S&P 500 Cycle Composite for 2025 shows a strong first half, third quarter pullback, and year-end rally. Years ending in five have been the strongest of the 10-year cycle because bear markets and recessions have been rare. Whether the second half follows the more bullish Cycle Composite or the cautious four-year cycle may depend on inflation and EPS growth.

CPI inflation comes in line with expectations, supporting a Fed rate cut next week. Employment outlook for Q1 2025 remains steady, pointing to continued payroll gains.

We highlight five themes on our radar as we head into 2025. A crypto-friendly SEC, more datacenters, cool video games, and a warming housing market could be key drivers. We highlight ETFs to gain exposure to themes we are watching including FinTech (FINX), Space (ROKT), Video Games (HERO), AI Software (ARTY), and Home Construction (ITB).

Sentiment evidence continues to point to elevated investor optimism. Positioning data and investor allocation surveys provide confirmation of elevated optimism. Equity allocations among hedge funds, active managers, and individual investors indicate relief of excessive optimism may be required for significant gains in the new year.

NFIB Index soars to a three-year high on post-election optimism about the U.S. economy and sales. Steady U.S. productivity and unit labor cost growth support core inflation near current levels. Chinese trade surplus surges. Brazil's inflation remains above central bank target.

We enter the year bullish on stocks and with a cyclical tilt on sectors and themes but could rotate defensively as the year progresses. Disinflation, EPS acceleration, and broad participation could give way to Fed uncertainty, tariff and deportation risks, and an EPS slowdown. Key estimates: 6600 S&P 500, 4.625% 10-year fair value, 2-2.5% real GDP, and 2.75-3.25% inflation.

China's core prices appear to be bottoming, but stimulus is needed for a meaningful recovery. The U.S. Employment Trends Index suggests firmer economic growth in early 2025.

The global economy showed continued acceleration in November, according to the latest PMIs. Services is still leading the expansion, but there are burgeoning signs of recovery in the manufacturing sector. Global breadth is strong, led by the U.S. and India. But renewed signs of weakness in Europe.

The Fab Five Sentiment Component has been bearish 70% of the time this year. However, the Monetary and Combo Components have been consistent offsets, while the Tape Component has been stuck in neutral. Assuming inflation remains on its downward trajectory, the positive monetary message should persist for much of 2025.

Payrolls rebound in November from weather and strike related distortions. But the trend in hiring has clearly moderated. The unemployment rate ticked up to 4.2% amid more baby boomers exiting the labor force. Consumer sentiment increased in December, but so did inflation expectations. Wholesale used vehicle prices rise from a year ago for the first time since 2022. These reports should keep the Fed on its rate normalization path in December, but support a slower pace of rate cuts in 2025.

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

Following China's announced stimulus in Sept., a burst of enthusiasm led to $2.1b of inflows for ETF's that comprise our China Theme, with rolling 5-day accumulated inflows peaking at a record high on Oct. 1. As enthusiasm faded, and additional stimulus in November underwhelmed, investors were reminded of the structural challenges China faces (demographics, deglobalization, and debt), pulling out over $1b from the theme. However, as valuations relative to the U.S. revert, the potential for additional stimulus, and net flows stabilize, we're neutral on the theme while on watch for shorter-term tactical opportunities.

Consumer confidence on the economy and stocks gets barely to extreme optimism. But other measures of macro sentiment still show healthy levels of skepticism. Measures of what consumers and margin traders are doing still bullish.

Jobless claims and layoff announcements remain range-bound, signaling robust labor demand. In a sign of continued U.S. consumer strength, vehicle sales increase, nearly catching up to pre-pandemic annual rate. U.S. trade deficit remains on a widening trajectory amid a strong dollar and stellar domestic demand. Eurozone retail sales fall, as consumers grow nervous about the outlook. Germany's factory orders fall less than expected, but outlook still dim.

India's economy demonstrates long-term resilience and strength. Technical indicators show strength for equities, with a high technical score in our ACWI Scorecard. However, fundamentals are concerning, with low earnings yields and valuation score in our scorecard. We maintain a neutral stance on Indian equities, balancing the promising long-term outlook with current valuation challenges.

The Catastrophic Stop model entered December fully invested. The International Equity Core model is overweight the U.K. and Canada, while underweighting China, Germany, France, and Australia. The Explore model favored Hong Kong, Peru, Taiwan, South Africa, and Thailand.

The All-Country World ex.-U.S. Total Return Index declined over 480 basis points in October. The International Equity Core model is overweight the U.K. and Canada, while underweighting China, Germany, France, and Australia. The Explore model favored Hong Kong, Peru, Taiwan, South Africa, and Thailand.

During November, global stocks outperformed U.S. bonds by more than 270 basis points. The Global Allocation model's equity weighting remains above benchmark allocation. The model has an above benchmark weighting for Canada, Europe ex. U.K., and the U.S., while holding below benchmark allocations for Japan, Pacific ex. Japan, Emerging Markets, and the U.K.

During November, global stocks outperformed global bonds by more than 340 basis 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 December 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 flat in November. 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 December with a fully invested equity allocation. Consumer Discretionary, Financials, and Utilities are above benchmark weight. While Communication Services improved to marketweight, Information Technology, Real Estate, Industrials, Materials, Energy, Consumer Staples, and Health Care are below benchmark weight.

The S&P 500 Total Return Index rebounded over 5.8% in November. Financials, Information Technology, Consumer Discretionary, and Utilities are above benchmark weight. Real Estate, Communication Services, Materials, Energy, and Consumer Staples are below benchmark weight.

Global market risk highest since 2022. For global fixed income, policy differences should result in weaker correlations. Global economy should grow in line with pace of 2024 but tariff uncertainties pose downside risks to growth and upside risks to inflation.

The weight of the evidence favors stocks on an absolute basis and relative to bonds and cash. The macro backdrop favors small-caps, but technicals have yet to confirm. The macro setup should favor Value, but technicals side decisively with Growth.

November was decidedly risk-on after the election, especially for Tech which saw 13 of 17 (76%) themes outperform the S&P 500. The highest returns were in "Trump Trades," led by Blockchain, Bitcoin, and FinTech, all of which were up more than 27% in November. The key will be for momentum to continue after Trump takes office and makes his legislative agenda known.

Both ISM and S&P Global U.S. Services PMIs comfortably above 50. Price indexes show inflation pressures have cooled. ADP payrolls growth moderates, but to a still healthy pace. Factory orders disappoint, as manufacturing activity remains weak. Mortgage purchase applications rise, despite elevated mortgage rates. Australia's GDP growth slows, putting RBA in a tough spot.

The S&P 500 posted its biggest monthly gain of the year in November as the market responded to election results. While all sectors registered monthly gains for the first time since March, leadership in November was decidedly more cyclical than defensive. The reactions from several sectors since the election have followed the 2016 script closely.

U.S. tariffs on Canada and Mexico would effectively be a breach of the USMCA and could lead to counter tariffs. About 1/3 of U.S. imports and exports could face higher costs. Given substantial supply chain linkages, tariffs could be a negative supply shock for the region and could lead to slower growth and higher prices.

Our short-term NDR Daily Trading Sentiment Composite came into December showing extreme optimism. On average, December returns for the S&P 500 were positive when optimism was high. Overall, our Fab Five Sentiment Component is bearish, which could mean trouble early next year.

The model maintained its bullish reading for the second consecutive month. Deteriorating breadth and economic surprises, copper weakness, and USD strength kept our view neutral. Oil and copper trend improvement coupled with USD weakness would likely move our view to bullish and align with the model.

U.S. job openings pick up, while layoffs drop. But labor demand is still broadly in line with supply, supporting continued Fed policy normalization. Brazil's economy grows more than anticipated, confirming further rate hikes.

The top-level equity allocation remains at 72%. Although the PMI breadth indicator turned bullish on equities, the global equity market breadth indicator deteriorated. U.S. Large Caps, U.S. Growth, and U.S. Small Caps each have over 15% weightings.

Manufacturing PMIs rise from the prior month, led by stronger new orders, but overall activity still in contraction territory. Nonresidential construction spending up modestly.

The S&P 500 has made 53 record highs in 2024, tied for the seventh most on record. Returns the year after at least 50 record highs have been weak, with 1995-96 being an exception. The rally has started to narrow; watch for further divergences to signal a weaker 2025.

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

Trump's pick for Treasury Secretary Scott Bessent is a prominent pro-crypto investor and is seen as bullish for crypto investing. So why did Bitcoin decline 6% after the pick was announced? Perhaps the pick was too bullish for Bitcoin. We noticed that other cryptocurrencies like Ether rallied as Bitcoin sold off, indicating investors may have used BTC profits to invest in other cryptos. Bitcoin is up nearly 80% since September 6, while Ether is up only 60% so Bitcoin could consolidate while other cryptocurrencies catch up. BTC falling below $86k would grab our attention.

Dollar strength has both pros and cons for the U.S. economy. It's typically disinflationary, but could weigh on manufacturing output and widen the trade deficit. A negative correlation with the S&P 500 implies a headwind to stocks from dollar strength.

Personal income and spending start Q4 strong, adding some pressure to PCE inflation. Fed still expected to cut rates in December. Initial jobless claims fall to a seven-month low, as labor demand remains healthy. Pending home sales rise more than expected. Durable goods orders disappoint. Along with a weaker Chicago PMI, it points to continued sluggish manufacturing activity into yearend. Q3 real GDP unrevised at a 2.8% annualized rate. Profits soften, but margins still elevated. German and French consumer confidence plunges, adding to downside risk for the eurozone economy.

Upgrading Canada to overweight; downgrading Emerging Markets to underweight. Global Regional Equity Model calls for more exposure to U.S. and Canada, less to Emerging Markets. Megacaps have helped U.S. dominate global market cap while Financials and Energy have most weight in Canada. Broad emerging market weakness.

Strong gains through November tend to be followed by additional gains in December. The broad rally means few tax-loss selling candidates. The Russell 2000 is near a critical juncture.

In this publication we highlight themes with healthy trends and good breadth. First, we screened themes that are on a relative strength golden cross. Next, we screened ETFs within golden cross themes that had at least 70% of constituents on a golden cross. We show the results and spotlight bullish trends for Infrastructure, Space, Video Games, Travel, and E-commerce.

Multiple long stretches of optimism are common in bull markets. The end of previous long streaks has been marked by worsening macro conditions, breadth divergences, and eventually major selloffs. Extended optimism proved warranted in 2024; it may not be justified in 2025.

Indicator evidence is less compelling than when we upgraded last month but shows insufficient deterioration to warrant a downgrade. U.S. oil and gasoline inventory data are bullish, and seasonality turns more favorable moving into next year. For now, the weight of the evidence aligns with major producer's goals of higher prices, and we maintain our bullish view.

Rising consumer optimism supports a positive outlook for spending growth into yearend. New home sales plunge to a two-year low, reflecting hurricane impact. Existing home price growth moderates. Richmond Fed factory activity still shrinking, but services improve.

Compared to the 2016 election analog, several Trump Trades are nearing inflection points. Like this year, Energy, Industrials, and Financials were strong initially following Trump's 2016 victory, but momentum for all began to fade by early December. Health Care, Technology, and Communication Services were weak post-election in 2016 but quickly regained their footing.

India's economy remains one of the strongest in world, maintaining its role as a notable driver of global growth. Compared to earlier this year, however, trends have slowed due in part to still-tight monetary policy and crackdowns on excessive lending. But the outlook is constructive amid near-term monetary and fiscal support and greater resiliency to U.S. protectionism.

After a strong first nine months of the year, European equities have faltered, but the case for a rally in December and January remains. If European equities fail to rally from here into January, this will signal to become more cautious. This will especially be the case, if we see spreads widening, leading indicators deteriorate, and economic sentiment fall further.

Hurricanes and Boeing strike weigh on Chicago Fed National Activity Index in October. German business confidence falls, indicating rising recession risk.

Bessent is thoughtful and a good listener - two traits he will need as Treasury Secretary. Expect Bessent to aim for a stable dollar and avoid the more extreme policy proposals. Bond investors should have some confidence that yields won't explode to the upside. As we have said previously, a 5.00% 10-year Treasury is a good place to buy bonds for the long term.

Composites assess the weight of the evidence, which has receded from highs. Trends are similar to those in 2021-2022, as is the bearish breadth indication. Lower lows in composites would make a bear market more likely.

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

Led by stronger services growth, the Flash U.S. Composite PMI jumps in November. Other Flash PMIs show a mixed global outlook. U.S. consumer sentiment still up post-election. U.S. state economic conditions argue for continued growth in Q4. Japan's inflation remains above BoJ target. U.K. retail sales collapse, adding to 2H weakness.

Since the S&P 500's low on September 6, two renewable energy themes have outperformed the index - Uranium/Nuclear (overweight via URA) and Lithium/Battery. Lithium moved to a buy on our Six Indicator Trend Composite last week and saw the second-best Scorecard rank improvement over one-week and four-week periods. Bears will point to weak EV sales in Europe and dour outlooks from suppliers like SQM earlier this week. We're neutral for now as we assess how long lithium can holds its charge.

A Republican clean sweep has historically been one of the best scenarios for equities. But economic growth has been one of the weakest historical scenarios under a Republican clean sweep, as well as inflation. Higher instances of recession and policies associated with smaller fiscal multipliers could be to blame.

Gold uptrend well intact after correction. Bullish gold position supported by weight of the evidence described by Gold Watch Report. Report enhanced with indicator removals and additions.

Existing home sales rise from a year ago for the first time since 2021. Tight inventories continue to boost price growth. Initial jobless claims decline to a seven-month low, as labor demand remains healthy. Philly Fed factory activity softens, but optimism surges. LEI declines more than expected. But NDR Economic Timing Model still points to continued expansion.

All Mag 7 components beat on bottom line estimates in Q3, with operating cash flows collectively hitting a record high. Investing and financing flows also reached records, as the companies continued to reinvest at high rates while increasing share buybacks and dividend payouts. Elevated capex spending could represent a risk for the Mag 7 during the next equity downturn.

The bond market seems resigned to inflation expectations settling above the Fed's inflation target. The risk is that expectations accelerate. For IG spreads to compress to CDS, Financial spreads need to contract further on potential deregulation. Worries about the death of foreign buyers is premature.

The S&P 500's post-election gain is similar to 2016, but breadth and small-cap strength have been less impressive. Financials has tracked its 2016 cycle even as the yield curve steepening has stalled. Gold, the dollar, and Bitcoin have tracked their 2016 patterns, with Bitcoin's rally much stronger in 2024.

A recent rise in consumer sentiment and consumer cyclical stocks has us optimistic that Millennial theme outperformance can continue. We acknowledge that Tesla and Amazon have been key drivers of consumer returns since September 6, but other areas like Consumer Services are also showing promise. We are considering making MILN our favored Millennial Spending ETF, which has meaningfully less exposure to Consumer Staples than our current favored ETF, IEDI.

ABI trend bodes well for nonresidential construction spending in the U.S. in 1H 2025. Elevated mortgage rates keep application volume subdued. U.K. inflation picks up more than expected, putting BoE on a more caution rate cutting path. Canadian inflation accelerates, likely slowing the pace of future BoC rate cuts.

The U.S. Dollar Index has reached the upper end of its range with excessive optimism. The euro and yen have reached the lower end of their ranges with excessive pessimism. The pound and gold have relieved excessive optimism, with gold maintaining its long-term uptrend. We remain bullish on gold, and neutral on the dollar and currencies.

High mortgage rates and hurricane impact weigh on housing starts in October.

European Q3 earnings have been robust and been received positively by investors. Banks have had the highest beat rate again. Further, euro economic surprises are now net positive, suggesting that economic forecasts have become too pessimistic, broadly bullish for equities. But longer-term, survey data suggests that geopolitical uncertainty could weigh on European equities.

Credit spreads continue to tighten with HY the lowest since pre-GFC and IG the smallest since pre-LTCM. Recommend loans over fixed-rate debt over the intermediate term. Greater optimism among banks with respect to the lending outlook.

Rising HMI implies a pickup in housing starts in the near-term.

The presidential election cycle shows the best two years are the last two. Valuations argue for limited upside. Other technical indicators suggest some risks ahead.

Stronger-than-expected U.S. retail sales suggest the economy has started Q4 on solid footing. Industrial production still weak amid Boeing strike and hurricane impacts. But surging Empire Index points to a likely rebound in the near-term. Business inventories kept in line with sales. Lean retail inventories pose an upside risk to inflation. A pickup in import prices rounds the picture of stalling broad disinflation. China's economy improves due to stimulus. Japan's GDP increases the case for another BoJ hike. U.K. economy slows more than anticipated.

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

Last week, following Trump's victory in the Presidential election, inflation expectations experienced their largest single day jump in more than a year. In our universe of 650 unlevered, long-only ETFs with more than $1 billion AUM, energy and natural resource related funds, like the VanEck Oil Services ETF (OIH), show the highest sensitivity to inflation expectations. Tariffs, deregulation, and looming OPEC+ supply make disentangling macro drivers difficult. However, if stalling disinflation causes inflation expectations to climb, energy and natural resource themes should go with them.

The expected pro-growth policies of the new Trump administration have boosted expectations for inflation and nominal GDP. Historically, 10-year Treasury yields have tracked nominal GDP. As a result, the market's expectation of the Fed's terminal rate is higher than the Fed's September projection. Faster nominal GDP will boost profit growth, reducing default risk, and support small-cap stocks.

We continue to maintain a neutral stance on China. Technical indicators remain relatively positive, albeit less so than before. However, the macroeconomic picture and the fundamentals haven't fully confirmed. We would need to see significant and sustained improvement in fundamentals and macro conditions to be more optimistic about Chinese equities.

Producer prices in the U.S. rise in line with expectations. Sticky services PPI may be a hurdle for future Fed rate cuts. Jobless claims decline to a six-month low, a sign the labor market remains healthy. Eurozone economy in solid state in Q3, but risks persist.

Bond proxy industries and sectors have mostly not participated in the post-election stock market rally. If stocks continue to shrug off rising interest rates, bond proxies will likely continue to struggle. If stocks eventually falter under the weight of higher borrowing costs, history suggests that bond proxies could offer refuge.

Yields have surged following massive political upheaval. Inflationary pressures could limit the response by central banks. No changes to regional allocations, as spreads approach resistance levels. Remain overweight EM debt relative to DM debt.

The NDR Daily Trading Sentiment Composite has returned to its excessive optimism zone. In years with similar patterns, the S&P 500 usually made higher highs before year end despite optimism. More than optimism may be needed to derail a year-end rally; watch interest rates and earnings expectations.

CPI inflation in the U.S. levels off in line with expectations, keeping the Fed on an easing path for now. Rising mortgage rates weigh on mortgage applications. Japan corporate good prices accelerate, supporting BoJ hike path.

Aerospace and defense related stocks, which make up the majority of members in our Space theme, broke out to new highs following the election last week. Even under conservative GDP growth estimates, a return to the average defense spending under Trump previously could grow defense spending by more than 10% compared to Biden. The group's relative strength improvement and reversing sentiment are bullish. Swift resolution of the short-term overbought condition and longer-term breadth divergence may lead to an upgrade of the theme.

The recent 'Trump bump' rally was not broad-based enough to trigger a breadth thrust. The rally has seen more of a rotation and we look at ETF flows and volume to determine where. Investors have shown a strong preference for domestic, cyclical Value, small-caps, Banks, Construction, and Tech.

NFIB index climbs to highest level since 2022, supporting a positive U.S. growth outlook for next year. German investor confidence unexpectedly falls, as headwinds rise.

Shifting our tactical recommendation from underweight to neutral for European Value versus Growth. An improvement in the global economic outlook supports the case for Value, as do our overall Europe Value/Growth indicators. However, relative valuations, trends in forward earnings and the 2016 experience mean we do not recommend an overweight.

Reducing duration multiple by 5% to 100% of benchmark duration. Closing out 2-year and curve steepener trades. The market looks a lot like 2023 with big divergences between trend and fundamentals. The political makeup looks a lot like 2016.

The S&P 500 posted its best post-election gain on record, as did the Russell 2000 and several cyclical sectors. Defensive sectors declined, preventing breadth thrust signals from firing. The risk is that the rotation turns into divergences, especially if bond yields continue to rise.

A rise in expectations boosts consumer sentiment in the U.S., which bodes well for consumer spending in the near-term. Canadian job market disappoints, putting oversized rate cut on the table again. Japan's household spending slows amid inflation concerns. Brazil's inflation rises above central bank target, indicating more hikes ahead.

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

Banks have outperformed Utilities six months after the start of recent rate tantrums. If rates keep rising we will focus on positive rate-sensitive themes, often found in commodities and Financials industries, for upgrade opportunities.

President-elect Trump's proposals will likely swell the budget deficit and government debt. With the economy running above potential, further fiscal expansion could be inflationary. This should keep upward pressure on bond yields, creating a headwind for stock market performance.

Fed cuts rates for the second time on its way to neutral. Look for the pace to slow to a quarterly cadence starting sometime in Q1 for a total of 75 bp in 2025. The back end of the curve and the term premium flattened in 2017.

NVDA and SHW are replacing two smaller stocks, INTC and DOW, in the DJIA on November 8. Stocks that have left the DJIA have outperformed those added starting about two months after the change. The DJIA has outperformed its long-term average the year before changes and has been a market performer the year after.

The global economy saw economic momentum pick up in October, according to the latest PMIs, indicating a firming of growth as we approach yearend. Leading indicators point to even more improvement in the months ahead, supporting equities. There are plenty of reasons to be optimistic about the global macroeconomic outlook, but the threat of broad-based tariffs and higher inflation present risks.

Continued strong productivity growth keeps a lid on unit labor costs and inflation. Jobless claims remain subdued, a sign of robust labor demand in an expanding economy. Mortgage applications decline amid rising mortgage rates. Chinese exports surge ahead of tariffs and strong demand. German industrial production slumps.

Upgrading cash from underweight to marketweight, moving 5% from bonds. In response to model, now marketweight cash, underweight bonds, and maximum overweight equities. November-December strongest two-month period, especially in election years. Response to bond yields will influence longer-term equity performance.

The Catastrophic Stop model entered November fully invested. The International Equity Core model is overweight China, the U.K., Canada, and Australia, while underweighting Japan, Germany, France, and Switzerland. The Explore model favored India, Mexico, Malaysia, Philippines, and Thailand.

The All-Country World ex.-U.S. Total Return Index declined over 480 basis points in October. The International Equity Core model is overweight China, the U.K., Canada, and Australia, while underweighting Japan, Germany, France, and Switzerland. The Explore model favored India, Mexico, Malaysia, Philippines, and Thailand.

During October, global stocks outperformed U.S. bonds by more than 25 basis points. The Global Allocation model's equity weighting remains above benchmark allocation. The model has an above benchmark weighting for Canada and the U.S., while holding below benchmark allocations for Japan, Pacific ex. Japan, Emerging Markets, Europe ex. U.K., and the U.K.

During October, global stocks outperformed global bonds by more than 110 basis points. The model's equity allocation remains above benchmark weighting, with U.S. Large-Caps, U.S. Growth, and Emerging Markets each receiving more than 15% allocation. The largest fixed income allocations were Emerging Market bonds and U.S. High Yield, both with more than 5% weights.

The Fixed Income Risk Management model deteriorated last month but entered November 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.

NDR Economic Cycle Infographic updated for Q3 2024, highlighting 12 economic sub-cycles. Real GDP grew at a solid pace in Q3, led by strong consumer and government spending. Labor market conditions have normalized. Most sub-cycles reflect continued expansion, despite still-high interest rates.

The Bloomberg Barclays U.S. Aggregate Bond Total Return Index was down 2.48% in October. 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 deteriorated last month but entered November with a fully invested equity allocation. Consumer Discretionary, Financials, Information Technology, and Real Estate are above benchmark weight. Energy, Materials, Industrials, Communication Services, Consumer Staples, Health Care, and Utilities are below benchmark weight.

After a 5-month winning streak, the S&P 500 Total Return Index dropped almost 1% in October. Financials, Information Technology, Health Care, Consumer Discretionary, and Utilities are above benchmark weight. Real Estate, Communication Services, Materials, Energy, and Consumer Staples are below benchmark weight.

The NDR Sentiment Composite and history of Democrat-to-Republican transitions support a year-end rally. The biggest risks are interest rates and inflation expectations in the near term and a fiscal cliff in the intermediate term. Small-caps and Value are benefiting from economic optimism; watching models for confirmation.

We upgrade Bitcoin (BTC) as a long-only trade with a price target of $121k (+60%). We like the risk/reward for Bitcoin. The crypto is breaking out on optimism of a Trump victory and we see the price running with little resistance at least until Trump takes office. If Bitcoin simply breaks below its new support (former resistance) level near $73K, its March 2024 high, we will downgrade -- meaning only about 5% downside from current levels.

Upgrading Financials (OW), Discretionary (OW), and Communication Services (MW), and downgrading Health Care (UW) and Utilities (MW). The changes are all in agreement with the current recommendations from the sector model. The positions should benefit if the typical post-election cyclical transition plays out this cycle.

Thematic breadth was resilient in October, with 22 of 48 (46%) themes outperforming the S&P 500. Key drivers were earnings beats from the Tech Titans, better-than-expected economic data and speculation on a Trump victory. Top-performing themes included Blockchain, Bitcoin, FinTech, Travel, Uranium and Cloud. Look for more upgrades from us if the risk-on environment continues after the election.

The S&P 500 registered its first monthly decline since April amid rising rates and uncertainty heading into the election. Despite the loss, sector leadership was risk-on, with Financials, Communication Services, and Energy the only sectors with positive returns in October. Trump Trades have been most bullish for cyclical Value sectors.

The backup in bond yields has moved several relative valuation indicators from bullish to neutral for stocks. Rate cuts should make stocks more competitive versus cash. Accelerating EPS growth has offset valuations in 2024, but that may not be the case in 2025.

Both the ISM and S&P Global U.S. Services PMIs show service sector growth near highest since 2022. Trade deficit swells, as imports jump. China's economy shows more signs of stimulus-induced recovery.

A Trump victory would likely see continued underperformance of European vs. U.S. equities, while the risk of tariffs would prove problematic for European exporters to the U.S. However, on an absolute basis, European equities and Cyclical sectors have tended to perform strongly following U.S. elections. We highlight key indicators which support a Cyclical bias within a European equity portfolio.

We apply the time-tested concepts from Norman Fosback's seminal book Stock Market Logic to sectors. The concepts span macro, fundamental, sentiment and technical, utilizing NDR's 360 approach. We determine whether the weight of the evidence is currently more favorable for cyclical or defensive sector leadership.

Although the ETI was little changed in October, its cumulative decline points to softer economic growth in the near-term. Factory orders decline in line with expectations, reflecting continued weakness in the manufacturing sector.

Government policies will likely be more important than monetary policy in 2025. The labor market is cooling and is not a source of inflationary pressures. Our base case is for rate cuts this week and next month, followed by three 25 bp cuts in 2025.

Stocks have historically rallied into the end of the year after an election. Our trend indicators and models remain bullish for stocks. Short-term sentiment is more neutral, while social mood remains subdued.

Emerging markets are participating in the global uptrend, but relative strength has weakened. Trend indicators for EM are mixed, while fundamentals suggest stretched valuations. Our model remains neutral on emerging markets, consistent with our marketweight recommendation.

Weakest nonfarm payroll gain since 2020, due to weather and labor strike distortions. Although the hurricane impact will fade, broad labor market conditions have cooled and will keep the Fed on an easing path with a 25 bp rate cut next week. The ISM Manufacturing PMI declines, as the sector remains in the doldrums.

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

We introduce our new Commodity Model, replacing the prior model after nearly 15 years. Though the indicators are new, the philosophy and functionality should be familiar to NDR clients. Output has been modernized with daily updates and interactive charts.

The October Conference Board survey showed 51.4% of consumers expect the stock market to rise over the next 12 months, the highest level ever reported in the 37 year history of the survey.

The U.S. economic recovery since the pandemic has been astounding, especially when one compares it to the rest of the G7. The handling of the pandemic and relatively stronger potential growth explain the discrepancy. Relative strength in the U.S. economy has also coincided with its relative equity market outperformance in the long run.

PCE inflation continues to ease, keeping the Fed on track for a 25 bp rate cut in November. Layoff trends show labor demand remains robust. Employment costs continue to cool down. Most regional manufacturing indexes remain in contraction territory. Eurozone inflation accelerates more than expected, keeping ECB on cautious cut path. China's official PMIs show modest expansion amid signs stimulus is working. Japanese industrial production rebounds, but outlook mixed.

Volatility increasing across markets, commodities and currencies. With currencies in ranges, sentiment supporting prospects for dollar to weaken and for yen and euro to strengthen. Rising volatility has yet to call for downgrading equities from overweight, while supporting positions that remain bullish on gold and neutral on the dollar and currencies.

The Airlines industry has been the lone bright spot within Industrials in recent months, rising more than 40% since mid-August. The industry is too small to significantly impact the sector level; however, several of our Airlines-specific indicators have turned more positive. Our Airlines Scorecard is now bullish, with capex and seasonal trends suggesting more room to run.

Trump's proposal to implement tariffs on all U.S. imports would have much larger negative implications on global growth and inflation than tariffs in his first term. The economies that rely most on their exports to the U.S. are Mexico, Vietnam, Canada, and Taiwan. The U.S. imports a broad array of products from these economies, but a major standout is autos and parts, followed by machinery and consumer goods.

The rise in real yields has effectively matched the increase in term premium. Inflation expectations track changes in oil prices, which influence bond prices. A 2% real yield is attractive for conservative investors who want to preserve their purchasing power and earn a modest real return.

Consumer and government spending drive solid real GDP growth in Q3. Inflation pressures continue to ease. ADP private payrolls surge, a sign of firming labor demand in Q4. Stronger eurozone growth and inflation reduce chance of outsized ECB rate cut.

Our overweighted uranium ETF URA has had a volatile ride. Macro and China concerns saw the ETF correct 28% after our upgrade only to rebound 37% since September 6. Near-term, we remain positive as China stimulus could help improve energy (and nuclear) demand and the country is building more new reactors than anyone in the world. Longer-term, we are encouraged that nuclear is seen globally as a critical part of reaching zero-emission goals, especially by Big Tech. Small modular reactors (SMRs) aim to be part of the solution.

The stock market has often declined when the outcome of the election has been delayed. The macro backdrop has mattered more for both immediate and long-term returns. Watch sentiment heading into Election Day for how well the market can digest uncertainty.

Earnings beat rate momentum peaked and is now negative. The breadth of positive earnings revisions has weakened. U.S. revisions have declined, with negative implications for future earnings.

Rising consumer confidence points to strong economic growth in Q4. JOLTS data shows healthy labor market rebalancing. Existing home price growth moderates. Goods trade deficit swells, weighing on Q3 GDP estimate. Japan's labor market tightens, but political uncertainty may delay BoJ rate hike.

Household net worth and liquidity are higher than pre-pandemic across the wealth distribution. The housing wealth effect is more widespread than the stock market wealth effect. Rising wealth and liquidity help keep delinquency rates subdued, which is a tailwind to credit growth and the economy.

A red sweep will likely result in higher bond yields and credit outperformance. The best environment for the bond market is a split Congress. Political uncertainty may linger for days. Volatility and term premium have increased. The surprising Japanese election could prompt an increase in our Asia Pacific regional allocation.

The top-level equity allocation dropped to 72%. The PMI breadth and Baltic Dry Index trend indicators whipsawed back to bearish on equities. U.S. Large Caps, U.S. Growth, and Emerging Markets each have over 15% weightings. Cash received an allocation (almost 5%) for the first time since the end of April.

The NDR Absolute Breadth Index gave a fresh bullish reading, confirming other advance/decline indicators. The percentage of stocks at 52-weeks highs recently made a high for the current bull, but watch new lows. Volume demand and the percentage of stocks above their moving averages are also positive.

Durable goods orders decline, dragged by Boeing. Consumer sentiment improves ahead of the election. Economic activity strengthens across more states, keeping U.S. recession risk low. German business confidence points to signs of recovery. Tokyo CPI slows, but BoJ still on path to slowly tighten policy. Canadian retail sales rise, led by autos.

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

Paul Tudor Jones is credited with saying the most bullish thing an index can do is make a new high. So it is with great anticipation that we await a new all-time high from the NDR Tech Titans group.

Changes in the fed funds rate are only loosely related to changes in the inflation rate. The labor market is the more effective channel for changes in the policy rate. Monetary policy is a blunt instrument that impacts the labor market more than inflation.

Continue to watch for rising evidence of a secular top as well as a cyclical peak. Trump win and trade war could lead to a secular bear market. Cyclical top warnings would include dropping composite model, breadth divergences, shifting leadership, sentiment reversal, beat rate decline, and Bear Watch warning. Secular bull intact for now, as is cyclical bull.

U.S. Flash PMIs indicate robust services growth, but continued contraction in manufacturing. New home sales increase. CFNAI suggests economic growth tapered off at the end of Q3. CEO confidence fades, a downside risk to capex growth in 2025. Initial jobless claims slide, but continuing claims rise, as labor market tightness eases.

A corporate tax hike could disproportionately hurt the capital-intensive sectors that saw the most benefit in 2018. Trump's proposal to reduce the corporate tax rate to 15% for companies that produce products in the U.S could reduce the tax bills for Utilities, Communication Services, and Real Estate the most. Another trade war would challenge growth and cyclical leadership.

Harris' corporate tax rate hike proposal could decrease S&P 500 after-tax EPS by 9%, while Trump's tax cut could increase EPS by 5%. S&P 500 returns have been below average after capital gains tax hikes, but the 1% buyback tax had little impact on big net repurchasers. With little detail and Congressional approval needed, any final tax changes will likely be far different from current ideas.

Hard landers have underestimated the wealth effect. The increase in net worth, helped by homeownership, is supporting consumption. Consumption is more vulnerable to changes in market valuations, which could lead to policies that protect asset prices. A large intergenerational wealth transfer could further support equities at the expense of bonds.