Fundstrat’s head of technical strategy, Mark Newton, says the S&P 500 is showing a deteriorating breadth signal that has aligned with prior bear markets.
In a new CNBC interview, Newton highlights the shrinking share of stocks participating in the market’s advance.
He warns that the same signal appeared last year and in 2021, foreshadowing an over 20% correction in the months that ensued.
“There’s only about half of all stocks that are above their 50-day moving average, and that’s troublesome. That happened also this time last year. And it also happened back in 2021.”
The S&P 500 ended 2024 at 6,099 before dropping over 20% to 4,835 in April of this year. In 2021, the index closed the year at 4,808 prior to a roughly 27% correction by October 2022.
Newton says that for the market to climb to new record highs, sectors beyond tech must pull their own weight. He notes that tech has become stretched after an unusually strong run that far outpaced the rest of the index.
“We need to see evidence of financials starting to participate, industrials, discretionary. Obviously, tech is the elephant in the room. It’s important to see tech working 30% of the market. But tech’s gotten very overdone and still delivering a lot of the earnings.”
In the near term, Newton expects the market to be in sideways consolidation.
“As to what’s to come, my thinking is it’s going to be a little choppier. It’s certainly an unorthodox time for markets to be going down or sideways. It’s tough for me to say the lows are in, per se. I think we probably could hit 6,400. But I think the maximum is probably about 7,000 now between now and the end of the year… Although I do see a bounce happening and likely starting this week.”
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.