Fundstrat Global Advisors says the S&P 500 rally is being driven by a narrow force that could soon broaden as interest rates fall.
In a Fox Business appearance, Mark Newton, managing director and head of technical strategy at Fundstrat, says the market has split in two since July, with one sector doing most of the heavy lifting.
He also says that two AI stocks are currently driving the S&P 500 higher.
“There is a really interesting phenomenon right now. We have this huge bifurcation because technology has done so well in the last month. The broader market has actually gone sideways since July. You look at the equal-weighted S&P. We’ve made literally zero movement in the last two months, where it’s all been technology…
Big breakouts in NVIDIA today, and also Apple moving up about 17 points in the last two days. That’s 7%. These together represent about 15% of the S&P. Tough to see a big sell-off if these big tech stocks are fueling the rise.”
Newton adds that smaller companies may be the next to spark rallies as borrowing costs fall.
“It began in April. The small caps have outperformed the equal-weighted S&P. Now they’re outperforming the actual large-cap tech S&P.
You go back since 2021, we’ve had two big peaks now that have been exceeded just in the last week. That’s very bullish for small caps. Everybody says ‘Oh tariffs, tariffs are bad.’
Well, bottom line, look we’re going to cut about five times between now and next summer. That’s very bullish for small capitalization companies that have huge debt-to-leverage ratios. So they want rates to come lower. That’s going to be happening.”
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