Investors entering into 'new era' of volatility: Strategist

The major indexes (^DJI,^GSPC, ^IXIC) are under pressure amid a global market sell-off. Fundstrat Global Advisors managing director and global head of technical strategy Mark Newton joins Market Domination to discuss the movement and how investors should navigate the pullback.

"A lot of this has been specifically technology related, and I think investors are trying to come to grips with this new era of really cross-asset volatility that's affected not only large-cap technology within equities, but also interest rates and FX [foreign exchanges]. And we're seeing cryptocurrency declines. And so it's really a new era where a lot of these have been declining at once," Newton explains.

He believes that despite the broad sell-off, it will most likely bottom out this week: "We'll bring a short-term low to this decline. And I say that specifically for a few reasons. One is that dollar-yen, which is at least one of the reasons why equities turned down so sharply, was a huge change in policy. BOJ (Bank of Japan) cut their bond purchases in half and obviously hiked rates, so we saw a big surge in the end...

"The second is that you're seeing sort of a dislocation finally in excessive volume to the downside. We never really saw that over the last few months," Newton explains. He notes that investors are now pricing in a 50-basis-point interest rate cut from the Federal Reserve in September, making the market "fairly valued." Fed officials are facing deepening pressure to even cut rates before its policy meeting next month.

He believes that the sell-off could present a buying opportunity as he does not believe investor fear "makes a lot of sense based on looking at broad-based nature of what's happening across the globe."

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl

Video Transcript

Stocks under serious selling pressure here.

But off the lows after what started as a scary open for investors and joining us now is Mark Newton fundstrat Global Advisors, managing director and global head of technical strategy.

Mark.

You are the perfect pro to have on today, my friend.

Uh let's start big picture.

What do you make of this sell off mark?

What are the charts telling you?

Thanks, Josh.

Well, look, a lot of this has been specifically technology related and I think investors are trying to come to grips with this new era of really cross asset volatility that's affected not only large cap technology within equities but also interest rates and effects and we're seeing Cryptocurrency declines.

And so it, it's really a new era where a lot of these have been declining at once.

I mean, the one thing I would say is that you really haven't seen that big of a degree and broader market weakness.

It's largely been technology.

Uh however, that is of course, something that affects most of our major indices and ETF S and it makes the market seem like it's showing a big decline, but there are a lot of healthy parts in the market and we can tell, talk about that in a minute.

Well, mark, that has been true largely in recent days.

But today, the selling has broadened out.

Right.

We're seeing it a little more, um, pervasive throughout the markets.

Does that tell us anything?

Are you, are you sort of taking away anything about how long this could last?

Uh, my thinking is that it likely bottoms this week.

Uh tough to say that it has bottomed as of yet.

But I, I specifically think that either this week or next week will bring a short term low for this decline.

And I say that specifically for a few reasons, one is that dollar yen, which is one of the, at least one of the reasons why equities turned down so sharply was a huge change in policy, boj cut their bond purchases in half and, and obviously, hike rates.

So we saw a big surge in the end and now we see this, uh you know, the, the the entire trade is being unwound in in the last uh few days.

And so I think that's really interesting and, and when you look at the, the carry trade where people borrow cheaply in the end to potentially buy large cap technology issues, uh Some of that has been alleviated.

Now we're seeing yen uh rise right to near prior uh peaks or in this case lows for dollar yen, which is 1 40 23.

So that's gonna be pretty significant support in the short run.

And so I think that is really, really important.

Um The second is that you're seeing sort of a dislocation finally in excessive volume to the downside, we never really saw that over the last few months.

And so volume was a very orderly type decline.

Now, you're seeing a huge amount of advanced decline to the negative, meaning huge amounts of declining issues versus advancing volume into declining issues.

That's giving you your first real whiff that we're getting close to a low at a time when the vics got up near 60.

And a lot of these fear gauges when you look at just traditional sediment polls have turned very negative in a very short period of time.

So when I look forward and I see, you know, the fed now has basically what we're seeing in the market pricing in a good likelihood of 125 basis points of cuts by December.

That's interesting.

Uh for the first time, the chance of, of cutting in September has been raised from 26 basis points to over 50.

So 225 basis point cuts of 50 basis point cut, which Powell was dismissive of as of last week now is at least built into the market.

So the market's gotten fairly valued, huge sell off technology.

Uh People have gotten scared, obviously, it's, it's a difficult time of the year in an election season between August and November.

But I sense that, you know, this is gonna bring opportunity for those that like to buy dips because I don't sense that this fear is really, uh you know, makes a lot of sense based on looking at broad-based nature of, of what's happening across the globe.