Fundstrat’s head of technical strategy just issued a warning on what’s next for US equities.
In a new interview on the Fundstrat Youtube channel, Mark Newton says the stock market’s latest rally was mostly due to the growth of the technology sector and investors should expect a pullback in November.
“The one thing I would say is that a lot of this rally has come specifically just from technology and not from the other sectors. Financials have been down in the last month. That’s an important part of the market. It’s the second largest sector. We want to see a broad-based rally start to materialize…
Optimism really has been non-existent for the market. We’ve gone from an environment of fear and now it’s more begrudgingly bullish. People realize the market’s taking off without them and many need to meet their end-of-year targets and try to keep up with the S&P. If that does change, and I do see that changing in the next couple months…
My thinking is November is going to bring about volatility. We can’t just go up, up, and away into [the] year end. My target on the upside is right near 69.50. So, we’re almost there and largely within the next week, I think it’s going to need to see some consolidation before we can push higher into year end.”
According to Newton, traders should expect a 5% drawdown next month. However, he notes that once the overextended tech market begins consolidating, other sectors could begin to rally.
“I think we’ll probably get 3% to 5% sometime in November, which should be expected. The market’s up 15% this year on the heels of 20% the last year and 20% plus the year before, so it’s logical to think we get these consolidations for reasons that people really don’t understand.
As to what brings it about, I mean that that’s trickier, but my thinking is tech has gotten well too extended. Any sort of weakness out of the likes of Alphabet (Google) or some of the others could bring about a temporary pullback in MAG 7 (Magnificent Seven stocks) and hopefully other sectors can buoy the market at a time when the market really needs a group outside of technology to participate.”
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