Transcript:
Caroline Woods Joining us to kick off the week is Adam Turnquist chief cross asset strategist at LPL financial. Adam welcome back. Great to have you.
Adam Turnquist Hey, Caroline. Great to be here. Thanks for having me.
Caroline Woods All right. So Adam, the S&P 500 bull market officially turns four years old today. So happy birthday to the bull market. We’re seeing basically flat S&P right now but trading above 7800. Is this a breakout investors should trust. I know you look at the charts.
Adam Turnquist Right now we’re holding 7800. So that’s an important line in the sand technically. And now we’re really watching. Are we going to get that breadth expansion. We’ve talked a lot about the narrow breadth to new highs. And that’s not atypical of what we’ve seen in this bull market. The mega caps tend to lead at these major inflection points.
Adam Turnquist Whether that 7800, the 7000 point milestone, the March lows, the list goes on and on. But what we have seen in the playbook of this bull market is a rotation after we get through those levels. So that’s what we’re really watching for. Now if we get that broadening theme to play out.
Caroline Woods Does that narrow breadth flow concern you, or have we learned at this point that this market doesn’t need broad participation to keep going higher?
Adam Turnquist We think of it more as a warning sign of structural weakness, the foundation a little less sturdy than if you had strong breadth. But I think context is key here. And if you look back over the last four years, we’re talking about the celebration of the the bull market Sprint Day here. We’ve really had a lot of narrow breadth moments in the market.
Adam Turnquist When you look at, for example, the percentage of stocks outperforming the index on a 12 month basis, it’s been below 50% throughout this bull market. And it really is an outlier when you look at the data set over the last 20 years. So it hasn’t stopped this bull market. The fact that we have narrow breadth, and I think it just speaks to the mega cap leadership, but also structural changes that have played out really since 2022.
Adam Turnquist We’ve had the proliferation of AI, the big AI CapEx cycle continuing to grow, but we’ve also had a massive inflow of passive ETFs. We’ve had a lot of buyback activities, and that’s really feeding. I think the concentration risk that we’ve seen in the market over the last four years.
Caroline Woods So what do you think? Where do we go from here? What level is next?
Adam Turnquist I think the path of least resistance remains higher for the market when you measure the consolidation range. We’ve been in for the last couple of months, and you take that size of the consolidation, you apply it to the breakout point, the measure and move. There’s about 8000. So that’s the target that we’re looking at technically on the S&P 500.
Adam Turnquist We’re coming into earnings season. Obviously it could be a big catalyst for whether it’s the banks that kick off earnings tomorrow. Obviously we’re going to look at the big tech trade and and see where the CapEx demand is in terms of AI. So I do think we’re setting up here for a potential new like higher for the S&P 500.
Caroline Woods And the S&P 8000 price target is because tech continues to lead, or because you think we will eventually see a broadening out again.
Adam Turnquist I think we will see an eventual broadening out. The caveat there. What are interest rates doing. What are was oil doing. We do think on a near term basis here, when you look at the move in, for example, the ten year a bit parabolic on a short term basis, we got very overbought into a major resistance level that goes back to the 2006 2007 highs.
Adam Turnquist I think sentiment positioning or at contrarian levels of some stability and interest rates will be key for that broadening theme. And then of course, stability in oil markets. We haven’t really seen a whole lot of over the last few weeks.
Caroline Woods Okay. You mentioned oil and rates. Bond market of course closed today. But oil U.S. crude trading just below $94 a barrel. Is there a level where yields or oil would make you less bullish and say, you know what, we’ve probably seen the highs at this point.
Adam Turnquist So when we look at Brant we’ll look at the world’s benchmark for oil above 102. That’s the summer highs. And we’re holding above that level. That does introduce upside risk to the spring highs kind of in the 115 to 125 range. I think if we break above those levels that would be a a pretty big risk for global equity markets.
Adam Turnquist Obviously the US as well. And I think that would just play into a higher for longer rate regime. So that would be the risk to the market if we get back to those levels and break out. But for now, we’ve had a slight slowdown in some of the crack spreads. If you look at whether it’s Brant or here in the US, WTI spreads fading a little bit.
Adam Turnquist Still very elevated. But some of the tightness not as pronounced is what we witnessed earlier this year.
Caroline Woods What areas of the market are you expecting to lead this market higher into year end?
Adam Turnquist Right now you look at the big seven complex and it’s been an underperformers almost all year. We’ve had a notable trend reversal in relative strength in the Meg seven rallying to new highs. I think the leadership baton has been passed to the Meg seven. And then that’s played out in the tech sector as well. We’ve had tech breaking out to new highs against the broader market.
Adam Turnquist Even when you equal weighted. So you take the average tech stock, you stack it up against the average S&P stock. And we’re at new highs. So to me that’s telling us that’s where leadership is going to be. We do think there will be an eventual broadening theme here. But look for basically large cap big tech the Meg seven to leave this market.
Adam Turnquist If we’re going to get to that 8000 point milestone.
Caroline Woods In, what is it in the charts that tell you Big tech is back in control?
Adam Turnquist I think it’s really a broadening out in the tech sector. It is the eye names, the mega caps that have done a lot of the heavy lifting. But when you look at the breadth in the tech sector, it’s very broad. One of the best sectors in terms of how many stocks are registering new for weakness or above their 200 day moving average.
Adam Turnquist I mentioned earlier the average tech stock breaking out against the average S&P stocks. So yes, it’s a handful of names that have really done a lot of the the heavy lifting off the July lows. But it’s broader than just the Nvidia’s of the world or the Microsofts of the world. And I think the fact that we’re breaking out to new highs holding these levels is a pretty constructive setup for the sector.
Caroline Woods Yet Microsoft is actually your chart to watch. Walk me through what you’re seeing there and what levels matter for Microsoft right now.
Adam Turnquist Right. It’s been a wild ride for Microsoft shareholders. If you could flashback to Q1, we had the AI disruption fears that we’re going to vibe code or wave away from from the enterprise software playbook. And we’ve had a big rebound off a double bottom in Microsoft. We’re getting close to the prior highs around 5050. I think that’s going to be the big level to watch for.
Adam Turnquist Microsoft can break out and clear that resistance at 550, I think. And the fundamental side, it’s going to be all about Azure growth. They’re going to hit their 45% target in terms of growth. The copilot seats are another one to watch. They’ve been expanding the the number of seats paid seats in their copilot package I think 30 million last quarter, up from 20 million.
Adam Turnquist I think those are going to be two key data points to watch on the fundamentals outside of just the charts here.
Caroline Woods I meanwhile, Nvidia just tried to break out above their breakout to a new high and then reversed course. It’s now 7% away from that high. Does that chart were you or is that just noise within the larger tech up trends?
Adam Turnquist It’s pretty classic where you breakout. We call it a cup with handle formation. Not to get too technical on the show, but we did breakout above that resistance level around 235 on a short term basis. I think we got a little bit overbought. And Nvidia, we’re now pulling back to near support levels around that 235 level. So that’s one we’re watching.
Adam Turnquist But another one that’s close to breaking out against the S&P 500. We talk a lot about Nvidia and rightfully so when you think about its importance of the eye trade. But it hasn’t really done anything for the last year especially on a relative basis. But we’re very close to new highs. If you stack up Nvidia versus the S&P 500, I think if we see a breakout there, a pretty constructive setup, not only for the stock, but for the semiconductor trade, for the tech sector and of course, the broader market.
Adam Turnquist When you think about the weighting that it carries.
Caroline Woods And if we don’t see that, how vulnerable is this whole market really, then.
Adam Turnquist I think it would more, more or less play out in a consolidation phase. We’ve seen that time and time again for Nvidia. Things get investors get excited. We break out and then consolidate. We’ve consolidated more than we’ve trended. Long term trend is still higher for Nvidia. So I would lean that way. That’s what the technicals would tell us about shares.
Adam Turnquist So I don’t think we’re the technicals are not saying that we’re going to break down here. Maybe just more consolidation phase before the next move higher.
Caroline Woods Okay. It’s funny you said you don’t want to get too technical. I did have a viewer I believe his name was Tamar Thomas, who had actually said he would love to see an episode to learn how you use movement or, you know, one of our guests, uses momentum strategy, how professionals use relative strength, moving averages, position sizing and risk management in real world portfolios.
Caroline Woods Because you do pay such close attention to the charts and momentum. Do you have any insights for our viewer who wants to learn a little bit more on that front?
Adam Turnquist Certainly, I would plug the the CMT organization to get familiar with the technicals and think of it as a weight of the evidence. I think you have to look at various insight into what the price action is telling you, not just momentum, but things like market breath. We’ll get the outperformance in the relative trend. And then of course, the macro environment, you have to put the puzzle pieces together.
Adam Turnquist What are interest rates telling us. What is the fed going to do. Oil. All of those pieces really go into the mosaic of making a decision in a market call. So I think looking broad beyond just a simple momentum indicator. That would be my suggestion.
Caroline Woods Okay. All right. Let’s switch gears and talk about banks. Because as you mentioned big bank earnings kicks off this week. Financials have fallen quite a bit from the highs so far. We’ve had a they’ve had a good October up about 3% this month. But down pretty sharply from earlier highs. Is this a sector that’s setting up for a rebound post earnings do you think or does that weakness tell us something bigger about the market.
Adam Turnquist The broader financial sector has just pulled back from a little bit of overbought levels. And you look at the bank specifically and it’s the same case. They’ve underperformed the S&P here. They’re not part of the eye trade. And I think it’s a low bar coming in earnings for the banks. We’ll get a bunch of big banks reporting tomorrow.
Adam Turnquist I think it’s going to be interesting to see what they have to say obviously about the consumer loan loss provisions, investment banking revenues, trading all of the usual check points for earnings season. But I do think the setup here, when price action is a bit oversold at a key support level, you look at the 200 day moving average for a lot of the banks, and most are holding above that level.
Adam Turnquist I do think we could have a little bit of a bounce here or a relief rally off the support level.
Caroline Woods And you’re watching Citigroup specifically. What makes that chart interesting going into earnings.
Adam Turnquist So if you pull up a chart of Citigroup, it’s bounced twice off its rising 200 day moving average, the longer term trend very much up into the right. And that 200 day moving averages acted as support before on similar pullbacks. I do think the fact that it’s holding and buyers are stepping in, they’re a constructive signal. And we’re starting to see on a near term basis some of the momentum indicators that we watch turn higher.
Adam Turnquist So that is pointing to a potential relief rally here off support. Obviously the catalysts or the fundamental catalysts may be setting up tomorrow. And again, I think it’s a pretty low bar when shares have sold off pretty considerably, especially on a relative basis here over the last few weeks.
Caroline Woods Given that it’s a low bar, relatively low bar if the banks can’t rally on earnings, is that a warning sign for the rest of the market?
Adam Turnquist I do think it is a warning sign, and I think that would push back against our thesis. We’re going to get a broadening theme if the banks don’t deliver and we get disappointing results, especially if we talk about higher loan loss provisions, underwhelming loan demand, things like that. I think that’s going to play out into a bit of, a risk off tone.
Adam Turnquist Certainly the banks set the tone for earnings season, and I think that would be, again, a warning sign for the broader market in general, and that we might not see this cyclical rotation with the S&P sitting here at or basically near record highs.
Caroline Woods All right. Let’s talk about, what investors should do from here. We had a guest on last week, Art Hogan, who told us the new highs are the best time to buy. He’s obviously bullish. I think his price target was 8000 for the S&P by year end as well. Do you agree that new highs are the best time to buy?
Adam Turnquist I’m going to quote Richard Driehaus and a famous hedge fund investor. Momentum. Momentum. No momentum investors talking about that and his his famous quote was buy high, sell higher. And that’s really what momentum is in when you have good momentum in the market. As we know momentum begets momentum. So I don’t I’m not scared of a market breaking out to new highs.
Adam Turnquist I do think that again, the path of least resistance for the S&P remains higher. And especially you look at positioning in the market, whether it’s retail or the hedge fund community. We’re at much cleaner levels than we were earlier this year. So there’s capacity for additional buying. We have seasonal strength in Q4, especially during mid to Ramirez. It tends to be a very strong quarter and we’ll get midterms coming up here in about a month.
Adam Turnquist I think that will remove some of the uncertainty in the market and open up the door for maybe a fear of missing out type of rally into year end.
Caroline Woods So which breakouts are you comfortable buying and which areas of the market would you wait for a pullback at this point?
Adam Turnquist I think the tech sector maybe checks the box for wait for a little bit of a pullback here. Where am I conductor’s down today at least a couple percent a little bit overbought on a short term basis when you look at some of the internals. But certainly, a constructive setup if we’re being tactical and you have the flexibility for timing, I think waiting for a little bit of a pullback there and buying at buying at the prior breakout level in the tech sector makes sense.
Adam Turnquist I think some of the other ones, the financials going back to the bank earnings look like a pullback opportunity. Again holding support a little bit oversold on a short term basis with catalysts coming up here. Are there any teas.
Caroline Woods And if we do get a pullback I know a lot of people have been waiting for a better entry point in time in the market. But you know, they they would like to get in a little bit lower of levels. What kind of pullback would you consider healthy and what kind would tell you okay. This is something more serious.
Caroline Woods Maybe it’s time to reconsider where this market’s going.
Adam Turnquist So on the S&P 500 I think a healthy pullback called 7600. That marks the spot where the S&P broke out back in August. I think if we can hold that level that would be a buying opportunity for broader U.S. equities. If we start breaking below that level, I’d be a little bit more concerned of a deeper pullback and really to to throw the towel in on the bull market, you have to look at the 200 day moving average on the S&P 500.
Adam Turnquist If we start breaking below that level, that would be much more concerning.
Caroline Woods What’s the one chart every investor should be watching right now?
Adam Turnquist I think it’s probably Nvidia to be honest. The elephant in the room, the largest sector or the largest weight in the S&P, the largest weight in the tech sector. And the fact that we’re near record high territory, certainly an important one to watch if we can continue to move higher, hold above 235, I think is a good sign for again, the stock in the broader market.
Caroline Woods So Nvidia is currently at 225. So that’s not necessarily the warning signal. Yeah I guess at what point would you start to get concerned about Nvidia?
Adam Turnquist I think if we started breaking below call it 200 on Nvidia, that would be a little bit more of a warning sign and kind of end to that range thesis that I mentioned earlier. That would be, I think more of a risk off tone.
Caroline Woods Okay. All right. I think this is a great time to pivot to a rapid fire game of this or that you’ve played before. Quick questions, quick answers. No hedging. Are you ready, Adam?
Adam Turnquist I’m ready.
Caroline Woods S&P 500 bull market ending at year four or going on to year five.
Adam Turnquist Going on on strong fundamentals and strong momentum.
Caroline Woods S&P 8000 before year end or not happening.
Adam Turnquist Before year end.
Caroline Woods New highs. Buy the breakout or wait for a pullback.
Adam Turnquist I think you buy the breakout.
Caroline Woods Market breath warning sign are overrated.
Adam Turnquist Warning sign but not a sell signal.
Caroline Woods Mega cap tech or the rest of the market.
Adam Turnquist Mega cap tech. That’s what the technicals are telling us.
Caroline Woods Ten year yield higher or lower by year end.
Adam Turnquist Higher.
Caroline Woods Bigger. Threat to stocks $110 oil or 6% on the ten year.
Adam Turnquist 6% on the ten year.
Caroline Woods Tech after a 20% rally. More room to run or do for a reset.
Adam Turnquist I think there’s more room to run.
Caroline Woods Banks into earnings, buy the weakness or stay away.
Adam Turnquist I think it’s time to buy the dip here.
Caroline Woods Bitcoin from here. Higher or lower?
Adam Turnquist Higher. Breaking out from a bottom down. Trends reversed. Looks like there’s more upside.
Caroline Woods How much higher.
Adam Turnquist I think maybe back to call it 90 to 100,000 on a near term basis.
Caroline Woods Okay. One word to describe this market.
Adam Turnquist Resilient easy one.
Caroline Woods Finish these sentences. The one thing that could derail this rally is.
Adam Turnquist Interest rate volatility.
Caroline Woods The level on the ten year that would make you worried is.
Adam Turnquist Above 530 to.
Caroline Woods The chart. That makes me most bullish right now is.
Adam Turnquist I think the tech sector.
Caroline Woods The chart that worries me most right now is.
Adam Turnquist Probably consumer discretionary.
Caroline Woods I will turn bearish on this market if the S&P 500 breaks.
Adam Turnquist I think the 200 day moving average at 7255.
Caroline Woods All right. We’ll leave it there Adam Turnquist Chief Cross Asset strategist, LPL financial. Thank you so much.
Adam Turnquist All right. Thanks for having me.
Caroline Woods If you enjoyed this street talk check out our full interview with Ben Emons. He says rates could go as high as 6 to 7%, but remains bullish on multiple areas of the market. Check it out.
