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

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.