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