Fundstrat’s Mark Newton: Expect Choppier Markets Ahead as Tech Diverges

Episode Overview

• Mark Newton of Fundstrat discusses the recent market volatility, highlighting a significant divergence between the high-flying technology sector and the rest of the market which has been largely stagnant since July.
• He explains that the overall market's performance is somewhat of a "mirage," propped up by a narrow group of tech stocks, while underlying participation from other sectors has been weak.
• Newton provides a cautious outlook, suggesting that while a short-term bounce is likely, the market will probably remain choppy with limited upside until there is broader sector participation and more clarity on Fed policy.
• The conversation touches on market breadth, interest rate expectations, and the conditions needed for a more sustainable and healthy market rally.

Key Concepts

• Market Divergence: A key theme is the significant performance gap that has opened up since July between the technology sector and the broader market, which has largely moved sideways.
• Narrow Leadership: The rally has been led by a very small number of large-cap tech stocks, making the overall market performance look stronger than it is. This narrow breadth is a sign of potential market fragility.
• Impact of Fed Policy: Market uncertainty is heavily tied to expectations around the Federal Reserve's next move. Recent comments have increased the probability of a rate cut, which could help stabilize markets.
• Market Breadth as a Health Indicator: Newton points out that only about half of all stocks are trading above their 50-day moving average, a sign of underlying weakness despite major indices being near highs.
• Conditions for a Sustainable Rally: A true, sustainable rally requires broader participation from other key sectors like financials, industrials, and consumer discretionary, not just technology.

Quotes

• At 00:31 - "we've seen a meaningful divergence between technology and the rest of the market and that started, you know, right around July." - Newton explains that the current market weakness isn't a new phenomenon but a continuation of a trend where tech has outperformed while other sectors have lagged for months.
• At 01:59 - "it's tough for me to say it's going to be off to the races until we start to see more evidence of more and more sectors starting to participate in this rally and not just technology." - He outlines his cautious stance, emphasizing that a broad-based rally is necessary before becoming more bullish on the market's near-term trajectory.
• At 04:34 - "We need the market to be moving, you know, many many sectors moving in unison all together." - Reinforcing his core point, Newton states that a healthy market requires multiple sectors to advance together, rather than relying solely on the performance of tech.

Takeaways

• Look beyond headline index performance to assess market health. The S&P 500 can be misleading when a few mega-cap stocks are driving all the gains, masking weakness in the majority of companies.
• Monitor market breadth as a key risk indicator. A low percentage of stocks trading above their key moving averages suggests the current rally lacks broad support and may be vulnerable to a downturn.
• Maintain a cautious and tactical approach in the near term. Expect continued volatility and avoid assuming a straight-line rally into year-end until there is clear evidence of broadening market participation.