The Market Looks Strong… Until You Check This One Indicator w/ Mark Newton

Quick Overview

Mark Newton predicts that equities and risk assets will require consolidation after their stellar run since 2022, anticipating a period of weakness from August/September into October 2024 before a potential rally leading into 2025, which he believes will be marked by a sector rotation away from mega-cap tech towards broader market strength, especially in areas like small and mid-cap stocks.

Key Points: Equities and risk assets, after a stellar three-year run since 2022, require consolidation, potentially starting in late Q1/early Q2 of the midterm election year. Newton forecasts market weakness from late July/August into October 2024, possibly bottoming before or in November, before potentially rallying towards the end of the year and into 2025. The S&P 500 is forecasted to end 2024 near 5,650, with a high target of 7,000, and potentially revisiting the 2021 highs into the end of 2025. Recent market breadth indicators show deterioration, with less than 50% of stocks above their 200-day moving average, which historically signals vulnerability. The mega-cap tech stocks (like Nvidia and Apple) that drove the recent rally are showing signs of range-bound trading or weakness, contrasting with the broader market. Newton suggests a sector rotation might occur, expecting strength in small-cap (IWM) and mid-cap (Mid-Cap 400) stocks over large-cap tech, which he feels are overvalued.

Context: The interview features John Gillen of Milk Road Macro speaking with Mark Newton, CMT, a market technician, to discuss the near-term outlook for equities, particularly in light of the upcoming midterm election year and recent market performance. Newton is presenting his technical analysis regarding market breadth, stock leadership, and potential rotational shifts, contrasting the recent performance of mega-cap technology stocks with the rest of the market.

Detailed Analysis

Mark Newton believes that after a strong three-year run in equities and risk assets since 2022, a period of consolidation is necessary. He expects this consolidation phase to begin around late Q1 or early Q2 of the midterm election year, with potential market weakness occurring from late July/August through October 2024. He forecasts that the S&P 500 will likely bottom in that October/November timeframe before potentially rallying sharply into late 2024 and 2025. Newton notes that historically, midterm election years have seen market weakness preceding a rally. He points out that market breadth has deteriorated, with fewer stocks participating in the recent rally, suggesting fragility. Specifically, he mentions that less than 50% of the S&P 500 stocks are above their 200-day moving average, which he considers a bearish signal. Furthermore, the outperformance of mega-cap tech stocks (like Nvidia and Apple), which account for a significant portion of the market's gains, has been largely range-bound since July, while other areas like small-caps (IWM) and mid-caps (Mid-Cap 400) have broken out to new highs. Newton suggests this signals a potential sector rotation where money flows out of the overvalued tech leaders and into the broader market segments, which he sees as undervalued relative to tech. He does not anticipate a full bear market but rather a healthy, necessary pullback and consolidation before the next leg up.