Executive Summary-- RISING RATES DAMPEN SPIRITS

THIS WEEK: 2nd Risk-OFF week. US Stocks DOWN, Foreign Stocks DOWN, Bonds UP and Gold U

The 30-year T-bond hit 5.61%. With the 10-year yield going to 5.28% and the cash yield dipping to 3.99%, the 3m-10y yield curve steepened to 129 bpts. US long Treasury prices fell 3.4% adding to last week’s 3.8% loss, mainly due to the expectation (85%) of at least one (and possibly two) additional 2026 Fed rate hikes. Higher US yields boosted the Dollar (+0.7%) but dampened equity investor enthusiasm. US small-caps (-0.2%) continued to fade and US large-caps (-0.2%) joined them in the red, still exhibiting limited strength in a narrow set of sectors, mostly tech related. The strengthening Dollar smacked gold (-3.4%) and oil (-1.8%) but the commodity index (-0.2%) held up better. Offshore equities were mixed against the stronger Dollar. Latin America (+0.7%) regained most of its prior week’s loss while Japan (+1.0%) continued to enjoy US support of the Yen (-0.3%), the only major currency to escape bearishness against the Dollar this week Asia Pacific (-0.2%) perhaps shared a bit in Japan’s positive karma, but Europe (-2.6%) broke intermediate support as the Euro (-0.8%) dropped. No changes in the models this week.

GLOBAL OUTLOOK POSITIVE (4 of 4 and unchanged this week) — The Baltic Dry Index, oil and copper prices and bond yields are all higher, making the outlook very positive.

US INFLATION — Benign August PCE Inflation report, still above target but coming down on a yearly basis. WTI oil prices dipped to $91. Global inflation per the Fed Check (83) still warrants tightening despite the latest rate hike but seems to be cooling.

US ECONOMY — Confidence, Income Weak, Construction, Personal Spending Strong. Yield curve positive and steepening. Recession chances a year out shrinking and minimal. Money market system healthy per SOFR. Above average US growth prospects. GDP Now estimate (Q3) at 3.7% as of 10/01. Q2 GDP revised from 1.5% to 2.2%.

FEDERAL RESERVE — 1st rate hike since 12/25 rate cut two weeks ago. Fed Check (83) remains hawkish. The Fed's balance sheet currently stands at $6.74 trillion, with the Fed Funds Rate at 3.75-4.00%. By December, at least one more Fed rate HIKE (87%) is likely and possibly two.

INVESTMENT STRATEGIES — There were no modifications to the models this week

INDEX MODEL: HOLD Emerging Markets (EEM)

The Global Index Model: HOLD Emerging Markets (EEM) 9/11/2026.

Equities are still the best place to be, beating cash, bonds, and gold, but for how long? Emerging Markets (EEM) remains the top-ranked asset class in the Global Index Model for the second consecutive week. The model's momentum signals continue to favor EEM over US large-caps, international developed markets, bonds, and gold. The relative strength of EEM versus other asset classes remains compelling, particularly given the backdrop of a weakening US dollar and improving global growth prospects outside the United States.

The decision to HOLD EEM rather than switch to SPY reflects the model's discipline: momentum must clearly shift before a rotation is warranted. This week's data does not yet support a switch. Investors should maintain their current EEM position and watch for any deterioration in the Baltic Dry Index, copper prices, or emerging market currency strength as potential early warning signals.

Strong gold kept the Index model in bullion to start 2026, with GLD outperforming all equity asset classes through the first quarter. The model rotated into EEM in late Q1 as emerging market momentum accelerated and gold's relative strength began to fade. Since the rotation, EEM has added meaningfully to the year-to-date lead over the SPY benchmark.

THE GLOBAL INDEX MODEL has been around for 34-years in one iteration or another. It is a momentum-based market timing model the latest version of which compares the relative strength of ETFs representing US stocks (SPY, IWM) and international stocks (EFA, EEM) along with US Treasuries (SHY, EDV) and Gold (GLD) in order to pick the single best asset class in which to invest your money. The model is updated weekly and the current recommendation is published each weekend in the Decision Moose newsletter.