Market Resilience: Analyzing the S&P 500’s Recovery and Future Prospects

Let's get to the big story breakdown.

While the S&P 500 is on a tear, snapping back to its pre-war levels and riding a massive seven-day winning streak with gains of more than seven percent.

And ahead of the open, the S&P 500 sits just two-tenths of a percent away from a brand new closing high.

While the rapid recovery comes as the geopolitical temperature cools somewhat, the U.S. and Iran ceasefire appeals to be holding. and the Saudi pipeline capacity is restored and crude oil easing back well below $100 a barrel.

Well, joining me to weigh in is Mark Newton, Managing Director and Global Head of Technical Strategy at Fundstrat Global Advisors.

So, good morning, Mark.

Thank you so much for joining me.

Good morning.

My pleasure.

Thanks for being here.

Well, here we are.

We are looking at U.S. stock futures nearly flat, but we have seen significant gains and a recovery.

So I understand you have a target of $7,300 for the S&P 500.

So walk us through that.

Yeah, that's my year end target.

Look, we've seen a pretty remarkable recovery in just the last two weeks.

I mean, S&P has been up about 10% in 10 trading days or about 1% a day.

So it's been, you know, a robust recovery.

It's been encouraging to see technology snap back.

I think the important thing is that, you know, breadth in the latter part of March really started to improve at a time when the industries were still churning That was the first positive.

The second is that defensive industries are really starting to fall.

But we never truly got the signs of real capitulation or oversold conditions, which made this recovery sort of interesting.

I'm thinking we likely could stall out temporarily near all-time highs after such a big move.

But in general, it's right to be bullish and really look to buy dips over the next month.

So I'm positive for this rally to continue into the fall and I think we probably do get some backing and filling at that time, but look, the market clearly pricing and the fact they think the ceasefire can continue and that there's going to be progress made.

Whether or not that happens right away is difficult, but when you look at the back month of most of the crude futures contracts, You know, we're seeing this huge backwardation, and at least they seem to be pricing in the fact that it's probably going to be difficult for crude to make too much progress.

I think crude oil personally has peaked out for the time being, and we're going to start a big decline.

We've seen signs of the dollar rolling over.

It's really been technology and seeing the Mag 7 start to come back.

It's really, really important for U.S. stocks.

Not only that, but financials, which have been out of favor really since the spring, now finally starting to claw back along with discretionary.

So, all good signs for a broadening out of this recovery.

Yeah.

And you highlighted a lot of key points there Mark.

And of course we're continuing to monitor the situation in the Middle East and that does have an effect on oil prices.

So we know that we've been watching both WTI as well as Brent because of its effect on inflation.

So some economies outside of the U.S. are more affected including Asia as well as Europe.

So given what we're seeing right now Tell us about your expectations for the U.S. currency because we did see a slight advance in terms of the dollar index, but there's been a pullback in that.

What do you expect for the U.S. currency as we head into the rest of the year?

Yeah, it's interesting.

I do expect that we're going to see the dollar weaken over the next couple months, but thereafter, I'm not certain the U.S. dollar is going to stay low for too long.

I think the U.S. will be in much better shape than most of Europe and Asia.

The US, of course, being oil independent largely, we continue to boost our infrastructure at a time when most of the Middle East actually is losing that degree.

So my thinking is the dollar probably will be stronger for the balance of the year, but We probably have a brief period where the dollar can weaken, and we've seen that as oil goes down.

Recently the dollar has started to fall, rates have dropped, all these signs of process of volatility starting to lessen a bit.

That's all pretty good news at a time when the U.S. remains really uncertain about this ongoing roulette game of negotiation and how this is going to play out.

Yeah, and I know you pay attention to technicals in particular.

So tell us about that massive reversal that we saw in short CTA positioning.

Can you also tell us what's happening in terms of the internal rotation as well as market breadth?

Yeah, whenever CTAs, Commodity Trading Advisors, get really, really short, then it's always important to keep on top of the fact that if we start to see a little bit of a bounce and we can see a lot of short covering, we can see a lot of urge to really buy into this rally, which we've seen in the last two weeks.

I think, you know, sentiment in my mind was not as negative as it was last April, but it had gotten very subdued.

With regards to the breadth, that's probably the number one thing that investors can use on both sides of the market, meaning breadth normally starts to stop going down and rise before equity indices have bottomed.

The same thing happened before the market turned down, that breadth actually started to pull back. often can camouflage the rally.

It's important to look under the hood at really sectors like financials, which recently have started to improve as well, and discretionary.

Industrials are still one of my favorite sectors for the entire year.

I think they're doing phenomenally well, as well as transportation stocks.

But it's really this broad-based rally that I think investors were looking for.

We're seeing signs of that coming back to life.

It's never proper to pay attention to politics or really what the administration says.

It's really all about the end results.

And right now, we know going into the driving season, they can't have crude oil at $100 or higher.

That's going to be very, very difficult.

They want to get inflation as low as possible.

If the GOP loses the midterms, then Trump's going to be a lame duck during his final two years.

So it's essential to do whatever we can to get the straight open, to get traffic back going.

I think it's a work in progress, but honestly I think that we're going to make proper negotiation to get that done over the next month.

And it can be choppy between now and mid-May, but I think we've seen really good evidence of breadth recovery to make me think it's right to be bullish really for this year and specifically over the next three to five months that we can carry higher.

So, Mark, you mentioned the midterm elections.

That is something that we are all counting down to and paying attention to.

But there's a lot in terms of fundamentals that you highlighted.

And as you mentioned, cross-asset volatility.

So, when we're looking within the S&P 500 right now, without any doubt, we know the energy sector is leading the way higher.

But given your expectations, your forecast, what do you expect to see in terms of the leaders and laggards within the S&P 500?

Yeah, honestly, I think that energy will probably try to fall out of favor in the back half of the year.

We've seen in the last two weeks energy has actually underperformed as crude has pulled back from its highs.

So yes, it's been a phenomenal leader the first part of the year.

I don't sense that that's going to continue forever.

Energy being up about 30 plus percent has a huge lead on most other sectors.

I want to buy technology.

I want to buy industrials.

You know, honestly, I like financials coming back, so those would be my top three, I think, for the balance of the year, at least over the next six months.

I think those are, it's been important to be selective in technology, certainly.

Software has fallen out of favor.

You can continue to see great strength in the memory names and the optical names.

With Mag7 having just broken out, when you look at the MAGS MagZTF, getting back up above the area where it broke down, really, really important.

You're seeing Google strength, Nvidia strength, Microsoft is going to be a work in progress as well as Tesla, I think, but Amazon and a lot of important parts to this market, you know, 30 or so percent or more that are starting to kick into gear that, look, investors have been waiting for six to eight months for this sector to start to kick in and now it's finally happening.

A lot of reasons to be optimistic.

Don't pay attention to the day-to-day headlines.

You really never know if what you're hearing is true or not or what to believe.

But it's all about the end results.

And when you see crude start to fall dramatically, along with the dollar, that's generally going to be a positive for risk assets, given that both were going up at a time that the stocks were falling.

So I'm a little bit more optimistic now.

I started off the year a little bit more negative.

We're down 9%.

I still think for the year potentially 15%, 15 to 20 max.

The majority of that might happen in the fall but I think for now the worst is over and even on some backing and filling I'd love to buy dips and I think we're there.

I think we're on the verge of a decent recovery.

Yeah, and one thing I do want to get your take on is the fact that we have started earnings season and we've been hearing from the big banks.

One word that has been popping up on the earnings calls from the C-suite executives is resiliency, the economy being resilient.

But when it comes to the big AI names that you're paying attention to within the ecosystem of big tech, what are you watching for in terms of key metrics as well as messaging?

Well, as a technical analyst, you know, it's less important to me about things like cash flow.

I know that was the big argument as to why a lot of these stocks start to fall recently.

But look, it's all about them starting to regain their leadership and strengthen again.

And investors need to constantly pay attention to the strength of tech versus the S&P.

That seems to be coming back.

I love the recent trading activity and the profits that we're seeing in financials and the big banks.

I think that's a big positive.

We've never really seen credit get too out of control.

I know a lot of people are still worried about private credit, that being a big deal.

But honestly, until I see evidence of high yield really starting to deteriorate, I mean, when you're looking at CDX and looking at the high yield and look at the option adjusted spread, none of those really signaled that we would go into this big credit event.

So those are a couple things I'm watching to really keep my eye on.

For the time being, breadth has gotten so good that we probably can back off a little bit.

They're about 82% of all Russell 3000 names above their 20-day moving average.

That's incredibly impressive.

Look, there's a lot to be encouraged about despite all the chaos that's happening around the world.

And it's important to separate what's happening in the Middle East from what's happening in the market and the earnings.

And to your point, earnings look like they're still going to come in in very, very good shape.

And so that's something that we can all be very proud of and something that's happening.

It's very, very good.