Why This Bull Market Could Keep Running

Let's get to the big story.

Breakdown corporate America is blowing past Wall Street's expectations for earnings and S&P 500 earnings have been surging 31% so far.

That is the strongest growth outside recession recoveries in over three decades.

But even better for bulls, earnings beats have outpaced price gains, compressing market evaluations.

Well, here to break down the charts as well as market rotation is Mark Newton, head of technical strategy at Fundstrat Global Advisors.

Mark, good morning.

Thank you so much for joining me.

Thank you.

Great to be here.

Well, here we are at the open.

We are looking at S&P 500 features nearly flat but still holding above that 7800 level.

So where do we go from here?

Well, my thinking is we are going to need to consolidate some of these gains that likely happens in the back half of August.

It's been a pretty decent run up since late July.

Technology has come back with a vengeance, but we've actually seen a pretty decent broad-based recovery in many sectors.

Healthcare, consumer discretionary has come back really out of nowhere.

So that's very encouraging overall to market breadth, and that's held up at now about 65% of stocks above the 200 moving average.

The fact that earnings have come in as strong as they have, it's really all about earnings and just the technical recovery of the market, and that really outweighs the fears that people have about inflation or the ongoing war and the end game for negotiations there.

You know, I'm pretty encouraged for the balance of the year, but I do sense it's going to be a choppier period now that we're into this seasonally weak time, which really is going to be from now until probably mid to late October up into the election.

Yes, and as we count down to the midterm elections, a lot to keep our eyes on, as you mentioned, whether we're talking about geopolitics or fundamentals or the monetary policy coming out from the.

Fed, but I do want to zoom in on tech in particular memory and what we've been seeing out from South Korea.

So give us your take on what we're seeing in memory.

Well, it's been beneficial, I think, to technology to have the consolidation happen, not all at once, but we saw initially software showed its own consolidation and then that spread to mag 7 and more of the hyperscales.

Then we saw the semiconductors weaken.

And finally it was memory.

Now memory has just started to come back in the last week and we saw also a similar, uh, you know, movement in the EWI, the South Korean ETF, which is, you know, the COSPI, uh, you know, which I think is, is very encouraging.

So I, I think technology has bottomed.

I have a cycle for technology and a lot of that showed it possibly bottoming into the middle part of August.

I think it happened early.

So tech looks to be on much better footing and earnings continue to come in very good.

We know economic strength has honestly been much better than expected, yet we don't really have the evidence of inflation that people have wanted to see to really justify the Fed hiking rates.

I mean, the recent data last week with retail sales and some of the CPI data was exactly what the Fed wanted to hear to really be on hold.

So I think tech is in a very good spot.

I like being long technology.

Downgraded my own rating technically from an overweight to a neutral a few months ago and I'm going to have to go back to overweight shortly.

Mark, you mentioned oil as well as inflation, so I do want to get your perspective when it comes to WTI as well as rent because that is a risk.

So where do you think oil is going, especially given some of this uncertainty?

I do think the risk is now that oil goes back to 100, at least with WTI crude.

I think that it's going to be more difficult now to immediately have a completed ceasefire.

A lot of different moving parts.

I mean, from the early part of April, crude went from 114 down to low 70s, high 60s, and now we're back at 82, so I think the next 20 to $30 is actually going to be higher between now and probably October, which means things might not go as smoothly, and that is a risk for the stock market when crude rising rapidly.

But it also is great for sectors like energy and materials that have just broken out relative to the S&P in recent weeks.

So for me.

It's going to still take time.

It's difficult to snap one's fingers and think that that oil goes right down, but I do sense between October and the end of the year, most of my cycles do end the year on a down note.

So I think it is going to be a temporary bump and that should be used to sort of solidify a more long lasting truce or negotiation for the strait and very tricky.

You hear a lot of things from both sides, but for the time being it's oil should go higher.

And Mark, another area of the market we're paying attention to is the steepening yield curve, and we're watching tenure yields not just here in the US but also across the globe, including in Japan.

So tell us what this is telling you.

Well, the US has been the best house in a bad neighborhood, I think, for some time.

Its treasury market was far stronger, and now that's starting to give way.

We've seen the 30 year as of Friday, the yield close at the highest level we've seen since 2007, 19 years ago.

The 10 year has also broken out.

The belly of the curve, the 5 year, most of these are starting to push up, and a lot of that is due to a couple of reasons.

I mean, at the last Fed meeting, we know that Wars wanted to get rid of forward guidance.

The front end of the curve was largely anchored, but the long end started to push up based on his.

Reluctance to describe the economy partially that is, I think, term premiums increasing in the treasury market, but we also see good signs of growth.

So it's really a combination of a few things that are causing yields to move up that should be very good for financials.

Financials started to reassert their own strength back in July.

They've pulled back ever so slightly with yields pulling back last week, but my thinking is that that is going to start now to turn back higher.

So financials along with healthcare and energy are really sectors I think should be overweighted in the next couple of months.

I think the yield curve is going to continue to steepen out.

But it's not all bad.

I mean, some of this is for growth.

The Atlanta GDP came in much higher than expected, and we have to realize that, you know, the economy right now is really in a Goldilocks period, I think.

And meanwhile, earnings are very, very good, so there's a lot of things to celebrate despite all the unease about the war.

Yes, and while we continue to monitor the global bond markets, I do want to move on to the FX markets, in particular what we've.

Seeing with the dollar yen, so in New York morning trade, we are looking at the dollar index right below the 100 level.

But as for the dollar and the yen, given the rate differentials and the central bank as well as what we've been hearing from Van, what does this mean for the currency?

Well, you know, we heard last week Takaichi's son really is encouraging the BOJ to consider hiking.

There's about a 75% chance now that the BOJ hikes.

So in general, I think there is going to be some upward pressure on the yen, meaning the dollar yen probably can fall to around 151.

There should be another shoe to drop with regards to some yen strength, but meanwhile, I think the dollar actually starts to push higher versus the euro and versus sterling.

So we know that the Japanese are practicing.

A sense of gradualism with regards to rate hikes and in general that's going to mean that the yen is going to continue to be weak.

There's only so much that we can do with regards to intervention and so Besson talking with the BOJ and a coordinated intervention, I think is going to be short term only with regards to strength, but they need to adopt more of a sense of hiking more quickly to think there could be any sort of yen strength and for the time being that's going to mean that any sort of gain likely is going to be a chance to sell the yen yet again.

Which travelers to Japan will like to see the cheaper prices to end of year maybe, but in general it's a tricky time when you go through multi-decades of deflation and disinflation.

Now you finally have a sense of inflation, and my sense is they want to let it run hot for a bit and not immediately look to cut that off.

Yes, and finally, Mark, before I let you go while we continue this trek around the globe, give us your take on emerging markets and what signals you're seeing.

Well, we've seen a little bit of weakness in, in China, honestly of late.

It's been a real laggard, and honestly, parts of Brazil have also weakened and much of that has to do with their own political situation with Lula.

My my my thinking is it's really right to favor what's happening with South Korea right now and really favor that rebound and many of those memories.

Stocks, the SK Heineks and the Samsungs of the world, the dollar eventually should start to go lower, but I don't think it happens in the next couple of months.

The dollar looks like it's got to move to about 102 in the DXY, which means that could still put some near term pressure on the Latin American markets and onto China underperforming.

But eventually a falling dollar, which I think largely happens late this year into next year after the midterm election, should be seen as something that can be beneficial to EM in general as an asset class.

Well, Mark, we will have to let you go for today, but hopefully you'll be back very soon.

I appreciate your time as well as all of your insights.

Thank you.