Markets Rally on Iran–U.S. Strait of Hormuz Deal—But Is the Optimism Premature?

US stock futures are rallying at least 1%.

Nasdaq futures are up by 2%.

This comes as the US and Iran announcing an interim deal to reopen the Strait of Hormuz and in a post on Truth Social Trump confirming that the critical waterway will officially reopen this Friday once the.

Historic agreement is signed while the trading week ahead is expected to bring plenty of anticipation as equities have been seeing volatility recently as for tech driving massive gains but the entire market is resting on a handful of names, although we are seeing some broadening of the rally.

And at the same time, all eyes are on the Fed's policy statement with the debut of that Kevin who steps in just as rising inflation is forcing global central banks to sound a little bit more hawkish joining me this morning here at the New York Stock Exchange is Mark Newton, Fundstrand's head of technical strategy.

Good morning here.

A lot of competing headlines this morning, but one thing is for sure, bonds are looking higher as well as global stocks.

So what do you make of the announcement?

Well, I think it's very encouraging on one hand, after all the back and forth to at least see an interim deal be announced.

It's nice to see the strait reopened when that can happen, you know, the negative is that we just have to view this with a certain amount of skepticism until we really see.

You know, a complete pullout of the troops from Lebanon.

I think we want to see.

You know, really some stability in that and have really more knowledge about the nuclear framework and really what's going to happen with the missile programs and until that happens, there's going to be negotiation that lasts over 60 days and hopefully we can iron out a more complete deal that will really give markets something to really cheer.

But initially, look, we've seen crude down substantially this morning, bond yields, equity certainly rallying.

That does take a little bit of pressure off the Fed.

In terms of hawkish comments that you might ordinarily hear now with an acceleration of the downside in crude oil, that's definitely a positive.

So I find reason to be optimistic.

Although, you know, technology continues to be very overbought at these levels.

Our correction lasted about a full 6 days, and now we're already roaring back.

It is nice to see the broadening out in many different sectors, and you touched on that earlier.

So seeing things like financials and healthcare and discretionary all rally back.

A very big positive, I think for risk assets at a time when, you know, before it was really just tech carrying the load and now we're starting to see that broaden out.

Yes, so I do want to focus on technicals now that we've covered most of the fundamentals here.

So we're looking at the S&P as well as Dow set to advance by at least 1% at the open.

So we are looking at above 7500 right now for the S&P.

So what levels are you watching?

I would look towards 77,250, honestly, a little bit over 7700, I think is very doable.

You know, a lot of my cycles had shown evidence of weakening into late July for technology, but it looks like that very well might invert and we might see, you know, at least a little bit of a temporary bounce in that group.

It remains to be right to be bullish.

I mean, there really hasn't, there haven't been sufficient evidence of real technical deterioration to get concerned, minor.

Rolling over in momentum on a daily basis, but the weekly and monthly momentum are in very good shape.

Yes, markets did temporarily get overbought, but that's never a reason to sell.

Earnings have been in good shape.

The economy has been in good shape, and now we have a number of different sectors that are now starting to help technology out with carrying that load.

So, you know, I view things as a positive.

I think at some point this is going to have to be digested and we'll see some consolidation.

That's probably.

You know, an August into October type event, you know, historically 3Q in midterm years can be difficult.

My thinking is eventually with bond yields starting to rise on the long end, that could be problematic, but for now bond yields are going in the opposite direction.

They're pulling back.

That's clearly a source of, you know, I think it's very good news for risk assets in general.

Yes, and here we are on this Monday morning.

We're coming off a historic win for the New York Knicks, but in addition to that, of course, a historic IPO for SpaceX on Friday.

So given what we're seeing, we're seeing this broadening of this rally, as you mentioned, and as a result of IPOs coming down the pike, we are seeing the Big banks higher as well.

So what sectors are you paying attention to as we head into the second half?

Well, absolutely I'm focused on all sorts of transportation materials, areas that would really benefit from a reopening.

Consumer stocks have really been hit hard in recent months.

Now those are starting to stabilize and rally.

Even stocks like Nike.

You know, starting to finally show some evidence of rallying, so you know it is good news if crude is going to move down substantially in the next couple of months.

That will be great for the consumer.

Obviously we want to get gas prices and food prices down.

I like financials here.

I wrote about this last week to clients that we've seen the banks really start to break out.

It really hasn't been a broker dealer period of outperformance.

It's been, it's been banks, and that's interesting because the yield curve honestly has been flattening out a bit of late, and normally you would not expect that, but.

Energy, I think, is going to be a source of real underperformance.

I would not invest in energy over the next few months.

I think as crude comes down, that's going to be an area to avoid.

Technology have to be very selective, so parts of semis and memory, they might have snapped back temporarily, but they're still at very, you know, almost excessively overbought level.

So I would choose areas within healthcare heading into.

You know, the seasonally most bullish time of the year for that group.

We've seen XHS, the Healthcare Services ETF, break back out to new all-time highs, very encouraging activity there.

A lot of great movement in biotech and pharma actually.

So for me it's healthcare and financials in the near term, but I have to look at parts of software also.

I think the technology, once it shows more evidence of consolidation, it will be right to put more into tech.

For now I think it's still right to be diversified across many different areas of the market and not just be 100% in tech.

Yes, and you mentioned what you're bullish on when it comes to sector, but of course earlier this year the term apocalypse entered our Lexicon and it is M&A Monday, so we're hearing about mergers and acquisitions.

Fox announcing their deal with Feroka as well as Salesforce as well.

So what do you make of what we're seeing when it comes to the tax base?

What sectors within the AI ecosystem are you bullish on and bearish?

Yes, that's a great question.

We could talk about this for half an hour and we probably have 1 minute.

Software is going to be great for the next couple of years.

I think it's really been overestimated the extent.

Stocks should really suffer based on this.

I do love semiconductors in the long run.

It's more just short term concern just based on how overbought this area has become, but everything was due to robotics, I think, and just, you know, nuclear.

I think, you know, power centers.

It's really important to have sort of a broad-based diversity across many different parts of the tech space that really fuel AI.

And so I think that that.

Certainly is an area that's going to be continuing to grow in the months and the years to come.

We know Google spent $80 billion and it's just they have about $150 billion on the balance sheet in cash.

So that's really interesting because Their own LLM.

They have their own chips.

So if anything, that stands out as a wonderful company and still really my favorite of the Mag 7 right here to consider.

So I'm positive, but I do recognize that things don't go up in a straight line.

That might have to be postponed until the fall in terms of thinking a real strong selloff is going to happen in the market.

Yes, and it's really been interesting to watch some of these mega cap tech names announcing capital raises recently as well.

But finally, before I let you go, we're all keeping our eyes on the G7 summit.

There will also be leaders from other nations.

Holding bilateral meetings at the same time.

So let's end today's conversation by looking at currencies, especially ahead of the Fed meeting this week, as well as other central bank meetings, because last week the ECB raised rates.

So where do you stand when it comes to rate differentials as well as FX?

Yes, I think the US dollar is going to be under a lot of pressure just given what happened with crude and The interim deal being announced, so we could see at least in the temporary next few months, the dollar pull back pretty sharply.

We know the BOJ likely is going to hike tomorrow.

Many other countries are hiking.

I don't see the US as having a good chance of hiking with Warsh's first meeting this week.

It's really going to be interesting.

I think that he's seeing some tug in very different directions, but the data, if anything, With crude starting to show signs of rolling over, markets are very forward looking.

We know that they'll likely be on hold for the foreseeable future.

So I don't see the US hiking, whereas most of the world that don't have the same degree of energy independence likely are going to suffer a lot more and might need to hike toward.

Of inflation, but most of the backwards data, it's very, very difficult to make decisions on in the near term with regards to what the central banks are forced to do.

Inflation here likely will be higher over the next 3 to 6 months, but we know as crude is dropping that that is going to be a transitory event and so.

You know, I'm bullish on the US, but I think temporarily the dollar pulls back.

That should be a source of comfort, I think, for most risk assets, for commodities, and for EM for emerging markets.

Well, a lot of moving parts here, so I appreciate your time, Mark, as always.

Thank you so much for joining me.

Thank you.

Thank you.