3Fourteen's Warren Pies on why market could see new all-time highs

By CNBC Television

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Key Concepts:

  • Technicals: Using price action and market data to make investment decisions.
  • Liberation Day: The point when policy and event risk become less important than market signals.
  • Small Caps: Stocks of companies with relatively small market capitalization.
  • Late Cycle Environment: A period in the economic cycle where growth is decelerating.
  • Sentiment: The overall attitude of investors toward the market.
  • Positioning: The extent to which investors have allocated capital to the market.
  • Breadth: The extent to which a market move is participated in by a large number of stocks.
  • Advance-Decline Line (AD Line): A technical indicator that measures the number of stocks advancing versus declining.
  • CTAs (Commodity Trading Advisors): Institutional trend-following investors.
  • Tariff Windows: Periods during which tariffs are subject to negotiation or potential changes.
  • Wall of Worry: A set of concerns that investors must overcome for a bull market to continue.

1. Bullish Technical Signals and Market Outlook

  • Warren Pies from 314 Research believes the S&P 500 is poised to reach new all-time highs this summer.
  • His analysis is based on technical signals that emerged in early May.
  • He emphasizes the importance of following price action, especially when policy and event risk are high.
  • The market's collective wisdom will see through the tariff issues.

2. Contrarian Indicators: Sentiment and Positioning

  • Retail investors have been "buying the dip," while institutional investors remain underinvested.
  • Strategists are lowering their targets, which is historically a bullish sign.
  • CTAs (Commodity Trading Advisors) are currently short on the market.
  • The Advance-Decline Line (AD Line) made new all-time highs before the market, indicating strong breadth.

3. Small Caps: Not Favored in the Late Cycle

  • Pies does not favor small caps in the current late-cycle environment.
  • He argues that low-quality small caps are not desirable when economic growth is decelerating.
  • Small caps are more attractive during the early stages of an economic cycle, especially with Fed stimulus.

4. Technical Evidence Supporting the Bullish Outlook

  • Institutional positioning shows that institutions are still backing away from the market and underinvested.
  • Strategists lowering their targets is historically a very bullish sign.
  • CTAs are short the market.
  • The Advance-Decline Line made new all-time highs in front of the market.

5. Tariff Risks and the "Wall of Worry"

  • The 90-day tariff windows pose a risk to the market.
  • However, Pies believes the market will see through these issues.
  • He suggests that Trump is likely to avoid policies that would crash the market.
  • A good bull market needs a "wall of worry" to climb.

6. Notable Quotes

  • "There's too much policy risk and event risk lurking out there for investors. And so the best way to navigate that kind of environment is through technicals." - Warren Pies
  • "The only time you really want to own small caps is like at the early part of a cycle, coming out of a recession. Fed stimulating. And you want high beta, low quality. And we're not in that environment right now." - Warren Pies
  • "Any good bull market needs a wall of worry." - Warren Pies

7. Conclusion

Warren Pies presents a bullish outlook for the S&P 500, based on technical indicators, contrarian sentiment, and the expectation that tariff issues will be resolved. While acknowledging the risks, he believes the market's underlying strength and the self-preservation instincts of policymakers will drive the market to new highs. He is not in favor of small caps in the current late-cycle environment.

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