2026 will see a potential 15-20% pullback in stocks, before a rebound: Fundstrat analyst

Key Concepts

• Market Consolidation: A period where stock prices trade within a range, lacking a clear upward or downward trend.
• Secular Uptrend: A long-term, sustained increase in stock prices driven by fundamental economic factors (in this case, AI).
• Technical Analysis: A method of evaluating investments by analyzing past market data, primarily price and volume.
• Symmetrical Triangle Formation: A chart pattern indicating a period of consolidation, with potential for a breakout in either direction.
• Breadth: The number of stocks participating in a market move; widening breadth suggests a healthier rally.
• Intermediate Term Cycles: Price movements that typically last several weeks to months.
• Quits Rate: The percentage of workers who voluntarily leave their jobs, an indicator of labor market confidence.
• Frothy Sentiment: An overly optimistic or speculative market mood.

Market Outlook for 2026: A Technical Analysis with Mark Newton

I. Overall Market Prognosis & Potential Drawdowns

Mark Newton, Managing Director and Global Head of Technical Strategy at Funstrat Global Advisors, anticipates a year of “consolidation and choppiness” for the market in 2026, despite a positive overall outlook with an S&P 500 target of 7,300. He foresees a potential 15-20% drawdown before the year concludes.

The signals indicating a potential drawdown would be weakness in key technology stocks – specifically, pullbacks from companies like Palantir, Microsoft, and Nvidia. Newton notes Nvidia has been largely sideways since July, and Microsoft has faced pressure for six months. However, he emphasizes that these signals are not yet present, and the early days of the year show positive momentum.

II. Current Market Strengths & Emerging Breadth

Newton highlights several positive indicators observed in early January:

• Breakouts: The Dow Jones Transportation Average, Dow Jones Industrial Average, and S&P Midcaps have all reached new highs (2021/2024 for Transportation, all-time highs for the others).
• Improving Breadth: After six months of waning participation, market breadth is showing signs of recovery, with industrial, financial, and discretionary sectors climbing.
• Sentiment: Investor sentiment is rising, though Newton cautions that excessive “frothy” sentiment would be a warning sign.
• Economic Data: Recent labor market data (increasing quits rate, decreasing layoff rates) suggests a resilient economy. Earnings have also remained strong.

He expects a “pretty decent stock market rally” in the near term (next 6-8 weeks), followed by pressure beginning in late February/early March, lasting until May, and then potential weakness in the third quarter. He stresses this is not a prediction of a bull market ending, but rather a necessary consolidation within a “multi-year secular uptrend in AI.”

III. Specific Stock Analysis: Apple, Tesla, and the QQQ

Newton addresses the performance of Apple and Tesla, noting their recent weakening despite the broader market’s gains. He views both as attractive buying opportunities.

He points to the Nasdaq 100 (QQQ) being in a “symmetrical triangle formation,” which he believes will resolve with an upside breakout, potentially driving technology stocks higher. He advises selective investment within the tech sector, highlighting the strong performance of data storage stocks like Seagate, Western Digital, and Micron, while noting that POUNDR has shown no movement in six months, emphasizing the importance of understanding the cycle stage of each investment.

IV. Commodity Outlook: Oil and Precious Metals

Newton is constructive on commodities, particularly energy and precious metals, but anticipates near-term pullbacks.

• Oil: He expects a final move down in oil prices towards new lows by mid-February, presenting a buying opportunity. He believes the “peak oil” narrative is incorrect, citing a reversal in stance by the International Energy Agency (IEA) and the increasing demand for fossil fuels driven by AI. He anticipates energy outperformance throughout the year.
• Precious Metals (Gold & Silver): He is bullish on precious metals, predicting gold reaching $5,000 and silver reaching $90. However, he acknowledges they are “very extended” and in the later stages of their intermediate-term cycles. He anticipates pullbacks as interest rates begin to rise in the spring.

V. Key Arguments & Perspectives

Newton’s perspective is rooted in technical analysis, focusing on chart patterns, market breadth, and sentiment indicators. He argues that while the long-term trend remains positive due to AI, a period of consolidation is necessary and expected. He emphasizes the importance of being selective within sectors and understanding the cyclical nature of investments. He cautions against excessive optimism (“frothy sentiment”) and highlights the need to monitor key economic indicators like labor market data.

Notable Quote:

“I think we need to consolidate what we've seen in recent years and that that process honestly has already started to happen with many of the often watch tech stocks that you and I talk about every day.” – Mark Newton

VI. Data & Statistics Mentioned

• S&P 500 Target: 7,300
• Potential Drawdown: 15-20%
• Gold Prediction: $5,000
• Silver Prediction: $90
• Nvidia: Sideways movement since July.
• Microsoft: Under pressure for six months.

Conclusion

Mark Newton presents a nuanced outlook for 2026, anticipating a year of market consolidation following a strong multi-year run. While maintaining a positive long-term view driven by AI, he emphasizes the likelihood of a 15-20% drawdown and the importance of monitoring key technical indicators, economic data, and investor sentiment. His analysis highlights the need for selective investment, particularly within the technology and commodity sectors, and a keen awareness of cyclical patterns. The overall takeaway is to prepare for volatility and potential pullbacks while remaining optimistic about the long-term growth potential of the market.