Market To Pullback By May, Then Race To New Summer Highs | Mark Newton @Fundstrat_Direct
TL;DR
Mark Newton predicts the market will experience a 3-5% pullback by mid-May following its historic V-shaped recovery, before rallying to new summer highs driven by improving technical breadth, resilient earnings, and typical post-conflict market patterns.
📊 Technical Market Dynamics 4 insights
Breadth improvement preceded the rally
The percentage of stocks above their 20-day and 50-day moving averages jumped substantially in mid-March while new lows diminished, signaling a bottom before the S&P reflected it.
Defensive rotation signaled risk-on
Consumer staples deteriorated sharply in March, indicating institutional positioning was shifting away from safety and suggesting the correction was ending.
Historic recovery velocity
The market gained 12% in 14 trading days, marking the fastest recovery from a 100-day low to a 200-day high on record, surpassing the previous benchmark from October 2014.
Rally without capitulation
Unlike typical bottoms, this surge occurred without extreme oversold conditions or excessive downside volume, driven instead by CTAs reversing $85 billion in short positions.
🌍 Geopolitical & Macro Factors 4 insights
Oil decline enabled stabilization
Crude oil's rapid drop from $115 coincided with market bottoming as cross-asset pressures including a rising dollar and higher rates simultaneously backed off.
Political pressure to resolve conflict
The administration faces election-year necessity to prevent $100 oil during driving season, creating urgency to reopen the Strait of Hormuz before November midterms.
Historical conflict patterns
Markets typically bottom within 3-4 weeks of major geopolitical conflicts starting, similar to 1942 during WWII when equities turned higher despite ongoing global warfare.
Extended conflict timeline expected
While Newton predicts the Iran war continues through September-October, he anticipates temporary agreements allowing the strait to reopen intermittently.
🎯 Forward Outlook & Strategy 4 insights
Mid-May pullback likely
Newton expects the market to give back 3-5% of recent gains by mid-May after getting overextended, before resuming a rally to new summer highs.
Earnings momentum supports bullishness
Analysts are raising earnings revisions as AI productivity gains create deflationary pressure that could allow the Fed to cut rates without sparking inflation.
Uneven sector participation
Only the Technology sector has reached new all-time highs among the 11 S&P sectors, requiring participation from Financials, Industrials, and Discretionary for healthy breadth.
Rate cuts priced out
Markets have eliminated expectations for 2025 rate cuts, shifting focus entirely to corporate earnings and economic resilience rather than monetary easing.
Bottom Line
Respect the bullish technical trend but prepare for a 3-5% pullback by mid-May before the market rallies to new summer highs.
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