A good week for the stock market quickly turned sour after earnings disappointed from retail giant Walmart and reports emerged of a Department of Justice probe into UnitedHealth Group.
The S&P 500 set fresh records on Tuesday and Wednesday, then fell to end the week down 1.66%. The Nasdaq 100 had set records of its own on Tuesday, yet it fell 2.51% this week. The Dow Jones Industrial Average had just as bad a week, down 2.51% as well. Losses in the blue-chip index accelerated Friday after shares of healthcare titan UnitedHealth fell and a February survey from S&P Global showed declines in services-sector activity.
But Fundstrat Head of Research Tom Lee says it’s been encouraging to see that the market hasn’t declined more, thanks to dip buyers jumping in on any sign of market weakness. On Thursday, for example, Walmart warned investors about slower sales gains ahead, sending its shares plummeting down 6.53%. In contrast, the overall market slipped 0.43%, which Lee categorized as a “modest” retreat. “The S&P 500 has had many chances for a deeper sell-off, but these declines attract dip buyers,” he observed.
For his part, Head of Technical Strategy Mark Newton has been encouraged by recent signs of improved market breadth. “We haven’t seen any real deterioration in equities whatsoever,” Newton said. “The bigger picture is that the market is still in good shape.” He likes that Technology is leading the charge, even with highflyers like Meta and Palantir taking a pause from their rallies.
In the near-term Newton expects to see the markets continue to consolidate over the next 3-5 days before posting a much larger push back to the upside. “I’m bullish, but, yes, there’s some things the market could do that would help to satisfy and make me a little more constructive that stocks can just simply trend up, and we’re clearly not in that regime just yet,” Newton said.
Chart of the Week
Investor sentiment is currently bearish, even though the S&P 500 is trading near all-time highs. As Fundstat’s Tom Lee pointed out, this is highly unusual: There have been just 11 prior instances in which the S&P 500 was within 1% of a 52-week high while AAII’s net bulls metric was at negative 15 percentage points or worse. History suggests this is a constructive signal. In those previous cases, the median 12-month return is 15.7%, with a win-ratio of 83%. Our Chart of the Week shows more details.
One key reason to be positive on buying dips in Equities has to do with the correlation to Treasuries and seeing what’s happening with Yields right now. 10-Year Treasury yields have only made a minor period of consolidation/bounce and are now headed back lower. Yields have declined sharply down to right above 2/14/25 lows at 4.447% and this is a crucial spot technically which i feel could be violated next week. Movement below 4.44% is more important structurally than 4.40% and will lead to a decline in yields down to 4.12. Thus, Equities are expected to enjoy a nice rally as this Treasury rally is ongoing, as i do not expect this correlation which has lasted nearly for three years.. to break down too substantially at this point. Overall, keep a close eye on both DXY and also TNX and under 4.44%, i suspect Equities should start to turn back higher back to new all-time highs. NVDA -3.67% next week very well could be a positive catalyst for Technology, as NVDA has shown precious little deterioration in recent days despite SPX and NASDAQ having pulled back. See this TNX chart and the technical structure which is being tested below.
PLTR -4.07% joins the growing list of high-flyers which have been hit hard this week, and as seen in this daily chart, PLTR reached its trendline from early this year and has bounced intra-day to hold February lows at $99.32 thus far. I don’t make much of this decline in PLTR despite the extreme nature of the short-term volatility on higher volume, and expect to see some stabilization into early next week at/above $95.
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