RiverFront Lowers Tactical Signal to Flashing Yellow

RiverFront Investment Group downgraded its Three Tactical Rules to a ‘‘flashing yellow light’’ after the S&P 500 reached new all‑time closing highs following a 6.2% gain over the past eight weeks driven by technology and semiconductor stocks. The firm cited stronger short‑term momentum, higher investor optimism and increased central bank caution on inflation as factors behind the change.

The Fed component remained at a flashing yellow. RiverFront noted core PCE inflation at 3.3% and unemployment at 4.3%, which it said leaves limited tolerance for upside inflation surprises. The report identified the Iran war and recent rises in oil and gas prices as potential sources of second‑order inflation effects. RiverFront highlighted June 17 as Kevin Warsh’s first Federal Open Market Committee meeting as Fed chair and expects him to place less emphasis on forward guidance. The firm also said higher yields since the Iran conflict have tightened financial conditions and that futures markets, which had implied rates on hold into 2027, are beginning to price in a greater chance of rate increases late this year into 2027.

On global policy, RiverFront described central bank stances as neutral rather than clearly supportive of markets. The Bank of England and European Central Bank have held rates this year but face pressure to raise them if energy‑related inflation persists. The Bank of Japan was described as nearing a rate increase amid rising wage and energy pressures.

The Trend component was upgraded to a green light after RiverFront calculated the S&P 500’s 200‑day moving average was rising at a 23% annualized rate, up from 12% at the prior update. The firm estimated that if the index remains at current levels the trend would remain positive for roughly nine months and cited historical probabilities that returns over the next three to six months tend to be above average under similar trend conditions. RiverFront stated it continues to prefer U.S. stocks over bonds in balanced portfolios.

The Crowd indicator was downgraded from green to a flashing red light. RiverFront described investor optimism as elevated by historical standards, in part driven by expectations for higher earnings from AI‑related companies. The report presented that elevated crowd optimism is a contrarian signal and said the firm had become more cautious about equity positioning without recommending an outright sell.

International equity trends also strengthened. RiverFront reported the MSCI All Country World ex‑U.S. primary trend accelerated to a 29% annualized rise from 18%. Over the past eight weeks international stocks underperformed U.S. equities by nearly 3%, narrowing their year‑to‑date lead to about 4.1%.

The report listed risks that could affect markets, including further increases in energy prices, war‑related shocks and potential shifts in central bank policy. It also reiterated standard investment risks associated with equities, fixed income and international markets and noted past performance is not a guarantee of future results.