Market: Why investors should be optimistic about the economy

The major indexes (^DJI,^GSPC, ^IXIC) closed Wednesday's session in the green after facing some pressure in the trading week. Fundstrat Global Advisors Managing Director & Global Head of Technical Strategy Mark Newton joins Market Domination Overtime to discuss major market trends forming around the tech-heavy S&P 500 and the Federal Reserve's interest rate narrative.

Newton believes there are "a lot of reasons to be constructive about the market," going on to explain:

"We're heading into a very bullish time of seasonality in election years. July tends to be very, very good, similar to June. I think a lot of investors remain worried about geopolitical risk, about political risk and the fear of growth slowdowns. But the bottom line is, technically, we have over 70% of all Russell 3000 (^RUA) stocks above their 200-day moving averages. That's actually a much healthier sign."

He also anticipates rates will fall along with the dollar: "I do sense that the data is going to continue to get weaker along the fringes. Inflation should start to fall like a rock. So despite the fact that gas (RB=F) and food prices are high for everybody, you have been seeing some evidence of broad-based inflation starting to come down. And I think that's going to be encouraging, not because a weak economy means stocks are good, more that the Fed's rate cut view will come back into line. And we'll have a little bit more clarity as to when they start cutting rates."

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

This post was written by Melanie Riehl

Video Transcript

S and P equal weight index down a half of 1%.

But Invidia didn't rise, it was the other sort of big cap mega mega cap tech companies, Amazon, for example, as we talked about earlier at a new record and above $2 trillion in market cap for more on what's going on in the markets, not just today but broaden it out a little bit.

We're bringing in Mark Newton, managing director and global head of Technical Strategy at Fund Global Advisors.

Thanks for being here.

Great to be here.

I want to get to some charts that you are watching to kind of help us direct us as to where we're going.

So here's the S and P 500 going back to the beginning of the year, actually going back several years and you've drawn, talk to us, talk us through what you're seeing from a technical standpoint.

So it is important to know the S and P continues to be dominated by so many large cap tech stocks.

So the broader market has not been doing as well as the S AND P. But yet we're up 14.5% year to date.

And so, uh, you know, a very nice uptrend it tough to find any issue with that, except if you don't own any technology, then you've obviously performed much worse.

Uh, a lot of reasons to be constructive about the market.

We're heading into a very bullish time of seasonality in election years.

July tends to be very, very good, similar to June.

Um, you know, I think a lot, a lot of investors remain worried about geopolitical risk, about political risk and the fear of gross slowdowns.

But the bottom line is technically, you know, we have over 70% of all Russell 3000 stocks above their 200 day moving averages.

That's actually a much healthier sign.

So yes, despite the minor breadth erosion we've seen in recent months, markets technically are still on very sound footing.

And uh you know, typically during election years, they do tend to rise through about August September before peaking and then selling off into the election.

So I have no reason to say without any evidence of trend deterioration that that can't continue.

I'm actually still quite constructive.

I think S and P gets up towards 5650 or so.

First part of July tends to be very, very bullish.

It's normally one of the best parts of election year, first couple of weeks in July.

So I think it's worth considering that may P ce might dip, that would cause a plunge in rates in the dollar and actually stocks would rebound and we'd see more of a broad based rally which we haven't seen in some time and investors are anxiously looking for.

Very interesting.

I, I also, I want to dig into the bread question a little more because this has been so much a topic of debate lately.

So this is a chart brought to us by Bloomberg where they looked at the S and P 500 in blue.

Then it's the percentage of stocks in the S and P above the 200 day moving average, that's in purple.

And they've highlighted these areas where we've seen big gaps now right now is one of those areas.

So the S and P continues to rise, but it just shows the momentum is not there for the B for many of the stocks within it.

Does that, how much does that matter?

Well, it matters just that investors understand that it's happening and, and, and it doesn't have to mean that the market is going to go into our correction or roll over those tech stocks can continue to go up and the divergence can get wider and wider similar to we saw back in 2021.

Um However, we can also see what I think is gonna happen is as a start of the broader market to play catch up.

And we've seen a little bit of that in financials over the last week, we've seen it in health care with sectors like biotech breaking out.

We've seen it in industrials.

The Dow Jones transports actually broke out of a very well defined downtrend today.

Uh That gives me a little bit of optimism that investors are skittish.

You know, we don't quite see the ebullience and the complacency, but at the same time, the broader market is slowly but surely starting to show evidence that it's ready to start moving higher, which I do think happens in July.

So let's look at the S and P equal weight.

This is the invest, invest ETF that tracks that um and so is are there also technical indications here that give you optimism that we're going to see a little bit of a break out?

Well, not yet.

No.

The answer is of course, no, but I mean, look this is a well defined triangle pattern for those that look at technical analysis.

Anytime you see a huge run up that then turns into a triangle nine times out of 10, you do get a continuation move, meaning we break to the upside.

I happen to think that because I feel that rates are going to start to plummet along with the dollar, which is very counter trend right now in terms of a narrative.

But I I do sense that the data is going to continue to get weaker along the fringes, inflation should start to fall like a rock.

So despite the fact that gas and food prices are high for everybody.

You have been seeing some evidence of, of broad based inflation starting to come down.

And I think that's going to be encouraging.

Not because a weak economy means stocks are good more that the fed's rate cut view will come back into line and we'll have a little bit more clarity as to when they start cutting rates.

But yeah, to make no mistake since March look, it's been a tougher market if you don't own tech, the market's literally been sideways, very different, different than, you know, last October through March.

So yes, we do need to see that evidence of broad based movement.

I think that happens in the next few weeks.

I I honestly am am pretty optimistic.

We're going to see it turn back up.

We got to get him one more quick one and then we got to send it to Miron here because we've got some earnings coming out NVIDIA because this is the chart that a lot of people are looking at here about whether we're going to continue to see upside for this one.

Look.

It's, it's technically and fundamentally very dominant right now.

Three days, it lost 300 billion in market cap.

But you know, the S and P only lost about 1%.

So it didn't really have the kind of extent of, of, of damage to the broader indices that many people thought might have because it is over 5% of the S and P I like NVIDIA.

I own NVIDIA.

I I do.

I, I sent out a note to clients saying 115, 116 is really rock hard, you know, short term support.

If it gets under there, there's a long term uptrend over the years it hits right near 105.

I think this company is gonna continue to outperform the Blackwell Chips are gonna be a big deal.

Customers are still double and triple ordering.

Technically sure it's over bought, but that doesn't mean you sell.

And that's an important reason.

We haven't seen any evidence of trend deterioration.

And now we know that in video is being bought by XL K and other ETF S and, and you know, it's tough for me to avoid it, you know, for any of you that know our product, Tom Lee.

I it's a, it's a super granny shot is part of his list and, and it, there's a lot of reasons to still embrace it.

I think it goes from 118 where it is now up to likely near 140 into the middle part of July, which would be a big move in a short period of time.

So I like it mark really great to get your perspective on all of this as always, really appreciate it.

Thank you.