- Investors should buy stocks during weak periods in the S&P 500, Fundstrat's head of global technical strategy said.
- Mark Newton said stocks have largely been resilient in the face of climbing bond yields.
Investors should take advantage of pullbacks in the S&P 500 and buy stocks as seasonality and other factors are in place to drive the broad equity index back up to an area not seen in six months, according to Fundstrat's lead technical strategist.
The S&P 500 may be facing a second straight slip on Tuesday, but it has advanced by roughly 3.6% in February even as Treasury yields have been climbing. The S&P 500 was modestly lower at around 4,117 early Wednesday.
"[If] anything, stocks have been far more resilient given the Treasury market selloff that we've seen in the last two weeks … we're largely unchanged in the short run," Mark Newton, Fundstrat's global head of technical strategy, said in a CNBC interview on Tuesday when the S&P 500 recouped most of its loss to finish lower by less than 2 points.
"So in the back half of February, to the bears' credit, you do tend to see a little bit more evidence of consolidation and possible weakness. But I think that's going to prove minor," he said. "I don't expect the S&P to get down under 3,900. Even on weakness, I'd be a buyer and I fully expect it we're going to push back up above 4,250 into March."
The S&P 500 has not touched 4,250 since mid-August.
Yields have pushed higher in the bond market selloff, with the 2-year Treasury yield on Wednesday hitting a 2023 high above 4.63%. The increase indicated bond investors see stronger-than-expected January retail sales and inflation data, released this week, keeping pressure on the Federal Reserve to continue ratcheting up interest rates to further ease consumer prices.
"I see rates actually reversing and pulling back into the month of March, if not April lower, and given the correlation, that should be bullish for equities," said Newton.
The S&P 500 has picked up nearly 8% since the start of 2023 and Newton said he sees three items underpinning the stock market.
Seasonality is the first: "February, particularly pre-election years, is far more positive than it is in regular years - up almost 1% on average versus being negative. So we're in the most bullish quarter of any of the 16 quarters of the four-year cycle," he said.
Secondly, sentiment, while gradually growing more bullish, remains very pessimistic. He said 65% of investors see stocks as experiencing a bear-market rally and could test lows. The third item is safe-haven underperformance.
"We're seeing defensives, utilities and REITs all sell off sharply. That's not something that typically happens ahead of a big pullback," said Newton. "So the reasons for why the market should go down technically are just not there."