Fundstrat’s head of technical strategy says US equities may be nearing the end of their recent pullback, setting the stage for rallies in tech stocks.
In a new interview on Milk Road Macro, Mark Newton says the weakness that has weighed on large-cap tech appears to be running out of steam, with seasonal trends lining up for a rebound.
“I am anticipating that the minor setback that we’ve seen, which has really afflicted a lot of large-cap technology stocks, should be nearing its end… My thinking is that really between now and potentially the end of February, early March, we probably can have a bounce in equities.”
But he warns that the expected rally may be short-lived rather than the start of a sustained move higher.
“Thereafter, for me, markets would start to show evidence of peaking out. I think we’ve already seen a little bit of that with regards to momentum and breadth already.”
Newton says he expects at least one more sharp rebound in technology stocks before broader risks resurface.
“I do expect to see at least one more snapback rally in technology before we do see technology undergo what many might think is a necessary correction from overbought or overvalued levels.”
Despite those concerns, Newton pushes back against comparisons to late-1990s bubble conditions.
“We’re nowhere near the valuation that we saw in the late ’90s. Seeing PE ratios of 25 to maybe 30 on companies that are all changing our lives for the better every day, it’s very tough to look at that and say, ‘Wow, that’s really overvalued.’”
Instead, he says his caution is driven more by market cycles and technical signals than fundamentals.
“My concerns are really less to do with valuation and more to do with just cycles. Technical levels of overbought conditions on many of these large-cap tech stocks.”
Newton’s outlook suggests investors may still see upside in technology in the months ahead, but with growing risks once the next rally plays out.
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