Transcript:
Caroline Woods
The S&P 500 keeps pushing to record highs. But are technical warning signs starting to emerge under the surface? Adam Turnquist is chief technical strategist for LPL financial and joins us now. Adam, great to have you.
Adam Turnquist
Hey, great to be here. Thanks for having me.
Caroline Woods
So, Adam, the S&P 500 is riding this six week winning streak up over 15% in that stretch. When you look underneath these record highs. What did the charts tell you about the health of this rally.
Adam Turnquist
So I think it’s really just a mega cap story. And that is nothing new to this bull market. For the last several years, we’ve seen the mega Caps lead the market through these really important resistance levels. And then the others follow and breath expand. So right now when you look underneath the surface breadth is okay. Not great for a market making new highs.
Adam Turnquist
But again it’s those more mega cap names that have have power. The S&P 500. Even last week’s record high rally five stocks contributed about three quarters of the overall gain. But you also have mid caps breaking out small caps even micro cap stocks making new highs. So I push back against this idea that it’s a very narrow LED market.
Adam Turnquist
When you start looking beyond the mega cap names, even though they’re not showing up in the S&P 500 breadth metrics.
Caroline Woods
So the fact that a handful of mega cap stocks are doing most of the heavy lifting, that’s not a warning sign. It’s just the reality of today’s market.
Adam Turnquist
That’s the regime that we’re in. And when you look at breath and you back test it over the last several years, really since the bull market started, there’s actually a negative correlation between market breath and actual 12 month returns from there. So it’s not surprising, especially when you look at the fundamental story in the market cap names. They’re contributing the most to earnings especially this quarter and reporting season.
Adam Turnquist
You have the tech sector I think reporting north of 50% overall earnings growth. A lot of the eye CapEx beyond those names is contributing a lot. So you have your best players on the field and are performing very well, I think. So the easier explanation right now.
Caroline Woods
I was taking a look at your notes, and you say 54% or about half of the index is above their 200 day moving average. Why does that matter? And is that a sign that there could be more room to run because others will play catch up? Or it could that be assigned to the to the other way?
Adam Turnquist
Right. So we think of it as the field of dreams. If you build it, they will come. And 54% is not great. As I mentioned, normally when the markets within 3% of a record high, about three quarters of S&P stocks are above their 200 day moving average. So there is room for breadth to expand. As this rally continues, we think there’s plenty of gas in the tank.
Adam Turnquist
When you look at retail participation in this recovery, pretty underwhelming in terms of their overall positioning. Yes, the market is a little bit short term overbought here and a bit stretched above the 50 day moving average. But the path of least resistance remains higher. And I think those pullbacks will be bad especially from that retail crowd that kind of missed out since March 30th.
Caroline Woods
So if I’m an investor watching this right now, do I feel good about this rally or do I? Should I be getting more careful here?
Adam Turnquist
It is a durable breakout when you look at the technicals through 7000. We’ve had great momentum, really unrelenting momentum over the last several weeks. There is this potential here for a bit of a pause or even a pullback. But I think using support at maybe the 20 day moving average or even the 7000 point area would be a pretty attractive entry point.
Adam Turnquist
I’d be surprised to see the market break below that level and this be a false breakout. When you look at the collective technical evidence here. Certainly the technicals line up well. They may very well with a very strong fundamental story. And I guess you could say even the macro environment improving a little bit, but still kind of a question mark there on what’s going on in the Middle East.
Caroline Woods
So dig into those levels a little bit more. Where do you actually think we’ll go from here? What are the actual levels on the S&P 500 that you’re watching? Aside from the 7001 that you mentioned?
Adam Turnquist
Yeah. So the 20 day moving average, just below current price, about 2 to 3% below current levels. There are some price gaps in that in that Ram range as well, right around the 28 day moving average, if you break that, you can have out of 70, 171 15, we’ll call it some intraday lows. And then of course that 7000 point milestone.
Adam Turnquist
Normally when you break out above a major resistance level you get a little bit overbought. It’s not surprising to see the index pull pullback to that prior resistance level at 7000. That would be a completely normal type of price action throughout history. So wouldn’t be a shocker to see even a 5% type of drawdown in the S&P 500 on a near term basis.
Adam Turnquist
But again, we would think of that as a attractive buying opportunity to get back into this bull market.
Caroline Woods
So those levels were to the downside. What about to the upside with the S&P at that 7412. Call it. How much higher could it go.
Adam Turnquist
So we’re revising. Or our year end price target is under review. We’ll call it right now. And we actually just hit the point in figure analysis. And I’ll go into to what’s the point figure. Readings about 7400 was the level we were looking for on this breakout. But. Well, we’ll see what the earnings story plays out for this quarter where our numbers command in terms of our upside price target.
Adam Turnquist
So we haven’t published that yet. So we’re we’re holding out. But look for a new upside in terms of our price target for your end here.
Caroline Woods
And what is it that makes you more bullish than you previously were when you had the 7400 price target?
Adam Turnquist
So I think it’s really the earnings story. And it’s been extremely impressive considering what’s going on in the macro backdrop. Even in March you had earnings improve in terms of your end estimates. First quarter estimates they moved higher in the wake of oil going to 120 a barrel and a lot of question marks over the Strait of Hormuz.
Adam Turnquist
When is it going to reopen. But the earnings story has been nothing but resilient. When you look at the CapEx spending as well, that’s been a big driver that those numbers continue to go up. We’re looking at over 700 billion from the main hyperscalers in terms of spending that flows down to other market cap levels beyond those mega cap names.
Adam Turnquist
So we think that spending story will remain a really solid tailwind for stocks this year.
Caroline Woods
And so you would say that the earnings growth justifies current valuations even in tech, because we’ve seen a really strong run up in a lot of the names there. Or are you starting to get worried, at least in that space that the market’s pricing and perfection here?
Adam Turnquist
I don’t think so. Because you look at the tech valuations right. You were at over 30 times forward earnings back in October. We’ve reset I call it a hard reset over the last couple of months here with a correction in the tech sector as earnings actually improve. So the E and the PE ratio moving higher and valuations right now I think around 23 times forward earnings.
Adam Turnquist
It’s it’s a pretty attractive valuation when you think about the secular tailwind here from I and all of that spending. You look at the growth expectations for the tech sector. So we would argue that they’re pretty attractive. We actually upgraded the sector to an overweight, a few weeks ago. And we think there’s plenty of room to run.
Adam Turnquist
And a lot of people are benchmarking this rally in the tech sector off the March lows. It’s had a very impressive run, but technically you can make the case. It’s really just starting to break out above those October highs.
Caroline Woods
What is the biggest headwind for the market right now? It doesn’t really seem to be higher oil, which is back close to $100 a barrel right now.
Adam Turnquist
Yeah. You would think that would have a little bit more of an impact on price action. But equity markets have responded much differently to higher oil over the last couple of weeks than they did in March. And you can see it in the daily change in oil versus a daily change in the S&P 500. So there is some level of complacency in equity markets in terms of how they’re viewing.
Adam Turnquist
What will come out of that. The war with Iran, I think they’re baking in relatively optimistic expectations for the straight to reopen and things to normalize. But the biggest headwind is certainly the macro environment. And of course, as higher oil, we don’t know when this trade is going to reopen. At what cost is it going to be to transit the Strait of Hormuz and then the timeline on that?
Adam Turnquist
So I think that’s playing out in the rates market as well. A little bit different message from equity markets in terms of how they’re viewing inflation and in monetary policy as well. So a little bit of a concern there. When you look at oil and interest rates.
Caroline Woods
You talked about a 5%, downturn could be a normal but a good buying opportunity for the current market. What’s the one signal that would tell you that this rally is really starting to lose momentum?
Adam Turnquist
Well, I think you got to look at it on a short term basis and use short term indicators. So we use different indicators. A momentum indicator is starting to roll over and buyers are no longer stepping up. And at shorter term dips would be a concern. I think that would be probably the biggest play. Biggest tell. I think what you see in interest rates, if we do see the equity markets start responding to higher oil prices, maybe a sign that that is weighing on sentiment.
Adam Turnquist
And that could definitely be a, short term headwind, I think, for equity markets.
Caroline Woods
So given all of that, what should investors actually be doing here in anticipation of a potential pullback, but also with the expectation that the market could power higher into your end.
Adam Turnquist
Right? I think the big message for investors at home is really to stay invested. I don’t want to say ignore the noise that’s going on in the Middle East, but stick to the trend here, which of course is higher. And I think stick to the fundamental story as well. We’re moving from this period of of escalation in the Middle East to de-escalation.
Adam Turnquist
We think that trend will continue. There will be some volatility, of course, around that. But I think staying invested using any type of weakness as a buying opportunity and then rotating into the right sectors. So we like tech. As I mentioned before, large cap growth generally works when tech is working. And then US equity markets are starting to outperform.
Adam Turnquist
And that’s been a new trend that that has recently developed over the last few weeks. It is very similar to April 2025, when you had big tech leading on the way down into the tariff tantrum, and then Big Tech leading on the way out in a big way. And that’s really the playbook that we’re seeing in this current environment.
Caroline Woods
What else outside of tech though?
Adam Turnquist
Well, we like the industrial sector. That’s another overweight that we’ve held for quite a while. And the technicals look good there. That actually looks like more of an attractive pullback opportunity right now at the sector level. And then thematically when you think about aerospace and defense, defense spending in this environment is certainly going up. And it’s not just in the US.
Adam Turnquist
You have NATO committing to 5% of GDP spending on defense. We think those trends have plenty of shelf life. And then you have the reshoring theme. So a lot of companies building more and more products, we’ll call it back in the US you have AI data centers. So they’re a big, derivative play on that in terms of the overall construction of those data centers, things like HVAC and the building materials that go into it.
Adam Turnquist
So we like that sector as well. It’s it’s demonstrated really good relative strength. And again, we think of it right now as more of a pullback opportunity.
Caroline Woods
I know you can’t give actual stock picks. But because you are a technician and you look at the charts, I’m curious especially after some of the earnings that we’ve seen. Are there any charts that still look very strong for some of the biggest winners that we’ve been seeing? And are there any that might be flashing warning signals?
Adam Turnquist
So we’ve had some really, really impressive runs, especially in the tech sector with names like Intel, AMD still still rally, and I think Intel is up over 200% in 30 trading days. Now, normally when you double over that short period, there’s going to be some some short term pain. I think it comes with the territory of a 200% rally.
Adam Turnquist
So no, no surprise there. If we get some, pullback. Just technically when you look at how overbought the stock is, one name though that looks really interesting is Nvidia. They have earnings next week finally starting to break out. The stock’s gone nowhere for several months. And finally starting to clear some important resistance levels. Technically you can make the case that there’s more room to run with Nvidia.
Adam Turnquist
It’s now demonstrating some actual relative strength and some outperformance. So I think that’s really going to be an interesting one to watch as we go into earnings next week.
Caroline Woods
Any that the chart or the numbers look good in terms of year to date performance, but the chart actually is signaling otherwise.
Adam Turnquist
Well you go to software and that’s been the story all year. Some of the the the fundamentals in the software space have really not changed. But the stocks have been completely beaten up with video over AI disruption. Microsoft looks interesting. One of the main hyperscalers as well. They’re spending a lot. And the AI arms race technically you can make the case here.
Adam Turnquist
Maybe it looks like a head and shoulders bottom pattern not complete yet. Still need to to clear the neckline, but certainly an interesting one when you look at the fundamental story there. And then you look at the technicals as well.
Caroline Woods
Yeah Microsoft still down about 15% year to date. All right. I think it’s time to transition to our rapid fire game of this or that Adam quick questions quick answers. Are you ready?
Adam Turnquist
I’m ready.
Caroline Woods
Here we go. Rally built to last. Are running on fumes.
Adam Turnquist
Built to last by now.
Caroline Woods
Or wait for a pullback.
Adam Turnquist
Short term. Wait for a pullback here.
Caroline Woods
Tech leadership or market broadening.
Adam Turnquist
Big tech is back. So tech leadership all the way.
Caroline Woods
So Meg seven or other tech winners.
Adam Turnquist
I’m going to go Meg seven. Because the broader Meg seven space is just breaking out now.
Caroline Woods
All right. So mega cap or small caps from here.
Adam Turnquist
Think that’s a tough one. But I’m going to go mega caps using the playbook from last year.
Caroline Woods
Narrow leadership or healthy rotation narrow leadership.
Adam Turnquist
But eventually a healthy rotation.
Caroline Woods
Momentum trade or a fundamentals driven rally.
Adam Turnquist
I’m going to go can I go both on that one because momentum is working, breaking out power by really strong fundamentals.
Caroline Woods
Bigger risk higher oil or higher rates?
Adam Turnquist
Higher rates.
Caroline Woods
By the winners. Or rotate into the laggards.
Adam Turnquist
By the winners. That’s what history has told us.
Caroline Woods
Cash on the sidelines or fully invested here.
Adam Turnquist
Fully invested. Move the money into the market.
Caroline Woods
Resolution with Iran catalyst to move higher or a sell the news event.
Adam Turnquist
Catalyst to move higher I think is.
Caroline Woods
One chart investors should watch most closely. Right now.
Adam Turnquist
Let’s go with the most important company in the world and Nvidia with earnings next week.
Caroline Woods
Nvidia after earnings higher or lower.
Adam Turnquist
I’m going to go higher with the momentum that we’ve seen in the stock recently.
Caroline Woods
One word to describe how your feeling about the market for the rest of 2026. Optimistic we’ll leave it there. Adam thank you so much. Really appreciate it.
Adam Turnquist
Thanks for having me.
Caroline Woods
That’s Adam Turnquist, Chief Technical Strategist for LPL financial. If you enjoyed this talk, be sure to check out our full interview with Mark Zandi. He explains why, despite the latest jobs data, there’s still a 40% chance of a recession.
