Markets Enter New Rotation Phase as Tech Weakens, Gold Turns Volatile

Remy: Ahead of the market open. We are looking at mixed U.S. stock futures with gold back above the $5,000 level. Well, joining me ahead of the market open is Mark Newton, managing director and global head of technical strategy for Fundstrat Global Advisors. Mark, great to have you here. Thank you so much for joining me.

Mark: It's great to be here.

Remy: Well, February is off to quite the start. But January was also volatile. So what do you make of the mixed market action we're seeing across equities across precious metals and even crypto here.

Mark: Yeah the important takeaway I think for investors that we're in a new era of sector rotation that really pays to study other sectors other than technology. the first time in a while, we're seeing energy and materials outperformance, consumer staples outperformance.

Meanwhile, many parts of software have really started to show massive deterioration. So I think there's really three things that investors need to be concerned about in the months ahead And one is that, you know, the high fliers that have started to come back to Earth very well, could start to metastasize into potentially semiconductors. And some of these storage names, like the Western Ditch and the Sea Gates of the World. These kind of things happen. Deterioration in technology is very real. Right now we're seeing bifurcation. But my view is that we probably eventually do spread to other parts of tech. The second is that, you know, being in the second year of a second term of a presidency historically has not been the best time. We look at Truman, Eisenhower. If you go back to Reagan, Bush, Clinton, Obama, they all had difficult second years of their second terms. So investors need to be prepared for that. And then finally, you know, new change of Fed governorship, you know, leadership. And I think as Warsh comes in, investors continue to try to parse every single second of Fed testimony. Now we have somebody where we're not sure about the communication style. We're not sure about the message inflation versus employment. We're not sure about the scope and the rate of how they can take the balance sheet down and how they can cut rates, and really, how many rate cuts might be possible for the balance of the year. So historically, you know, we've seen an 18% drawdown during these new Fed leadership shifts, starting not only with Powell, but also looking at Yellen, looking at Bernanke and looking at Greenspan, who presided over the '87 crash. So it makes me a little bit concerned that this year likely is not going to go up, up and away for the majority of sectors, but we are in need of some consolidation. And that probably starts in late February or early March, probably down into the late spring.

Remy: Yeah. And, Mark, while I have you here, I do want to ask you a question about what we saw yesterday. So we saw that sharp selloff on the Anthropic announcement of gen AI tools. And a lot of us were scratching our heads like, why is that affecting software names? And even Jensen Huang of Nvidia said overnight that it is illogical to see those moves. But we have to keep in mind. Last week we saw that massive move of UnitedHealthcare and even Microsoft. So what's going on here?

Mark: Yeah. Look, software has been said by many people is sort of behind the AI curve and not getting returns on their investments there. Unfortunately, software is a group has dropped versus equated technology to the lowest level in about 15 years. That's pretty important really for the balance of this year. It means that software, although I do suspect we can probably balance in the group. I'm not certain that that's going to be the area investors want to look at in regards to technology. So look, it will be you know, it's great to diversify. I don't have any specific reasons specifically for software as to why this is happening, but it's in a bucket. And when it starts to get sold. And we saw that with SAP in Germany today on the heels of that, that news. So you know, my thinking is right now they're all going down. And there's not necessarily a lot of fundamental reason to describe it, but you have to pay attention when this kind of stuff starts to happen.

Remy: Yeah. And Mark finally, 60s here. What's going on with gold?

Mark: Gold, in my view, has turned into more of a trading type instrument versus a buy in whole. So a lot of reasons to own gold and silver. But yet we've seen a lot of the froth that happened at Bitcoin now gold and silver. Now software you have to pay attention. But a one of the largest declines in gold of all time on a three day basis. My thinking is we do rally over the next couple of weeks. I'm not convinced that we get back to new all time highs. I think we have more to go on the downside after this bounce, probably into March, April. At that time, we can probably buy dips as investors and think we can push back, but it's going to be choppy, volatile and not what investors are used to seeing.

Remy: And so do you have a price target by your end for gold?

Mark: You know I said $6,750 initially in my year end piece. I think it probably can decline, though it probably $3,750, even $3,500 in the months ahead. So I would use rallies over the next few weeks to sell. I think we sell off. And then I think you want to buy dips.

Remy: Okay, Mark, great having you here. you so much for joining me.

Mark: My pleasure.

Remy: Thank you.