Mark Newton: Why Markets Will Still Prove Choppy in December
Audio Brief
Show transcript
In this conversation, Fundstrat's Mark Newton discusses current market choppiness, tech sector divergence, and the outlook for a rally tied to Federal Reserve policy.
There are three key takeaways from this discussion. First, look beyond headline market movements and analyze individual stock performance within key sectors, as demonstrated by the divergence between Nvidia and other big tech companies. Second, monitor Federal Reserve communications closely, as market rallies are currently very sensitive to any shifts in the probability of future interest rate cuts. Third, exercise patience in the short term, as a sustained move to new market highs may not occur until after the December FOMC meeting, which is expected to provide more definitive policy signals.
The tech sector is experiencing significant bifurcation. While major names like Alphabet and Apple reach new highs, Nvidia has seen a temporary sell-off, signaling investors are differentiating performance even within AI. This divergence highlights the need to analyze individual stock strength versus overall sector trends.
Market rallies are heavily influenced by expectations for Federal Reserve rate cuts. Stronger-than-expected economic data, such as durable goods orders and lower jobless claims, reduces immediate pressure on the Fed to ease policy. This dynamic creates uncertainty, which the market generally dislikes.
A significant, broad market rally to new highs may be postponed until more clarity emerges from the December Fed meeting. Sustainable rallies require broader participation beyond tech, with sectors like financials yet to join. This underscores the importance of patience until definitive policy signals are provided.
These insights offer a crucial perspective on current market dynamics and the path forward.
Episode Overview
- Fundstrat's Mark Newton discusses the current state of the stock market, highlighting a period of choppiness and bifurcation within the technology sector.
- The conversation analyzes the divergence in performance between major tech stocks, with companies like Alphabet and Apple reaching new highs while Nvidia experiences a temporary sell-off.
- The episode covers the latest economic data, including jobless claims and durable goods orders, and explores how this information influences the market's expectations for future Federal Reserve rate cuts.
- Newton provides his outlook for the remainder of the year, suggesting that a significant market rally may be postponed until after the December Fed meeting provides more clarity on monetary policy.
Key Concepts
- Tech Sector Bifurcation: A key theme is the split performance within big tech. While the overall sector has been strong, there's a notable divergence between stocks like Alphabet (up) and Nvidia (down), indicating investors are differentiating within the AI space.
- Fed Rate Cut Bets: The market rally is heavily influenced by increasing bets on a Federal Reserve rate cut. The market dislikes uncertainty, and as the probability of a cut rises, investor confidence grows, supporting stock prices.
- Sector Rotation and Market Breadth: For a sustainable, broad market rally, participation is needed from sectors beyond technology. Financials, the second-largest part of the S&P 500, have not yet joined the rally, which is a critical factor to watch.
- Economic Data Interpretation: Recent economic data, such as stronger-than-expected durable goods orders and lower jobless claims, is viewed as a short-term negative for the market. This is because strong data reduces the immediate pressure on the Fed to cut interest rates.
Quotes
- At 0:20 - "I am not betting on this decline extending too much longer before a reversal, and that likely happens next week. You were spot on." - Host Maria Bartiromo congratulating Mark Newton on his accurate market call from the previous week.
- At 1:00 - "Tough for the market to go down if you have these two key stocks moving higher, but yet you do have Nvidia now selling off to the lowest level since late September." - Mark Newton explaining the internal bifurcation in the tech sector, where strength in Apple and Alphabet is offsetting weakness in Nvidia.
- At 3:03 - "I think that likely is going to be postponed until after the Fed meeting. There's still a lot of uncertainty, a lot of divisiveness within the Fed." - Mark Newton giving his outlook that a new market rally to all-time highs will likely wait until there is more clarity from the Federal Reserve in December.
Takeaways
- Look beyond headline market movements and analyze the performance of individual stocks within key sectors, as demonstrated by the current divergence between Nvidia and other big tech companies.
- Monitor Federal Reserve communications closely, as market rallies are currently very sensitive to any shifts in the probability of future interest rate cuts.
- Exercise patience in the short term, as a sustained move to new market highs may not occur until after the December FOMC meeting, which is expected to provide more definitive policy signals.
