Equity Momentum Support Fades to Neutral

The short-term picture calls for caution ahead

Highlights

• Equity momentum is fading away

• Labor hoarding in business services is starting to unwind

• Beige Book at odds with the government data

• Air is being let out of the AI balloon

While We Were Sleeping

Volatility remained the name of the game yesterday, with U.S. equities looking set to repeat the pattern of giving up their pre-market gains — slumping back to flat on the session by midmorning, before jumping to the highs of the day by 2:30 p.m. then rolling over into the close. When all was said and done, however, fading geopolitical risk premiums in the Middle East and a lull before the wave of macro/earnings data later this week saw all three major benchmarks finish roughly +1% higher on the day (the S&P 500 reclaimed the 5,000 mark in the process).

Nonetheless, for a market that was nothing but smooth sailing on the back of strong momentum off the October lows, the damage has been done. Our Equity Momentum Model has officially flipped to “yellow” (neutral momentum) from “green” (positive momentum), meaning that the short-term picture calls for caution ahead and that more time is required to evaluate the near-term market direction.