The stock market has scaled a wall of worry in 2021 and stands within shouting distance of a fresh round of records for the major indexes, but Fundstrat’s new technical analyst makes the case that the benchmarks are nearing a peak this week as the holidays are about to get under way.
Fundstrat’s technical strategist Mark Newton said cautious buying in markets, with areas of the market considered defensive gaining traction, suggest that a pullback is likely next week as volumes thin out due to Thanksgiving in the U.S. Only four of the S&P 500’s 11 sectors are higher so far this week, led by gains in consumer discretionary 1.9%, utilties 0.9% higher, tech up 0.5%, and real estate advancing 0.5%.
The Fundstrat folks appear to hold a fairly bullish view on the market longer term, but made the case that in the near term, a renewed surge in cases of COVID-19 in parts of the U.S. and elsewhere in the world and persistent inflation jitters (though some economists are starting to voice the view that price pressures also are nearing a peak) might create a chance for a “minor ‘wall of worry’ to build” into the coming week.
U.S. markets will be closed next Thursday in obersvance of Thanksgiving, and that Friday will mark an abbreviated session that is historically one of Wall Street’s lowest-volume days.
Newton appeared reluctant to give the downturn more relevance than an air pocket in a market that appears to be otherwise on a bullish trajectory, despite a host of pesky issues, including uncertainty about the leadership of the Federal Reserve.
“But as we would be ‘buyers of this dip’ — thus, even with the expectations for near-term weakness, and expect markets to be strong into [year-end],” wrote the Fundstrat folks. Newton, a prominent technical analysts on his own, joined Fundstrat, co-founded by Tom Lee and John Bai in 2014, back in September as its head of technical analysis.
The markets have already showed some unsteady trade after all three benchmarks on Tuesday closed within a hair’s breadth of record highs. The Dow Jones Industrial Average is down 0.5% so far this week, while the S&P 500 is nursing a 0.1% weekly gain, and the Nasdaq Composite Index is 0.4% higher thus far this week. Meanwhile, the small-capitalization Russell 2000 index is down 1.4% on the week.
Fundstrat has set its price target for the broad-market S&P 500 at 4,800, lifting it from 4,700 about a month ago, making the case that strong trading in October, a month that can be weak for stocks, tends to lead to more buying the rest of the year.