Market high would signal 'there's still upside potential' for investors: Chief Investment Strategist
Sam Stovall, Chief Investment Strategist at CFRA, joins Seana Smith on The Final Round to discuss what market highs would mean for investors in the short term and long term.
Video Transcript
SEANA SMITH: I want to bring in Sam Stovall. He's the CFRA chief investment strategist there. And Sam, we were just talking about the fact that maybe we will see this record high today. And I know in your latest note, you titled it, "A New High is Nigh." So if we get this new high today, what do you think that signals about the market?
SAM STOVALL: Well, certainly it signals confidence that there is still upside potential by investors. Historically, we have seen a new high take place an average of about eight days after we have come within 1% of that all-time high, which happened back on August 10th. The longest stretch was 21 days. So all together, the implication is that we'll be hitting a new high before this month is out.
SEANA SMITH: Should we brace for some profit-taking if we do see a new high?
SAM STOVALL: Yes. Again, history gives us some guidance that we usually advance about 2 and 1/2 months, on average, before then falling into a decline anywhere of 5% to 14%, averaging about 8%. So it's like the messenger from Marathon that he ended up stumbling from exhaustion after accomplishing his task. So don't be surprised at all if this market does go into a pullback or a minor correction before resuming its upward trend.
SEANA SMITH: Hey, Sam, what do you think about the fact that big tech has really led this rally? Because we've seen big tech really be the outperformer here, and I think there's some worry that the fact that the market is only dominated by a small number of stocks. So do you at all think that this makes the market maybe a little bit more vulnerable to some of these potential reversals that we could see?
SAM STOVALL: Well, while I agree that the market is driven by the behemoth tech stocks, the two largest, as well as you have two more from consumer discretionary and communications services, they're the ones that represent a good 30% of the S&P 500, but at the same time, 95% of the nearly 150 subindustries in the S&P 1500 are trading above their 50-day moving average, and 70% are above their 200-day moving average. So you're seeing a pretty broad amount of participation. These smaller groups, these smaller companies might not be the true leaders in a market cap weighted index, but if you're having that kind of participation, I would actually say that is comforting.
SEANA SMITH: Yeah, Sam, it's interesting because the market spreads is certainly widening out a little bit. So as you take a look now, just in terms of what could lead us another leg higher, what are some of the sectors that you're favoring at this point?
SAM STOVALL: Well, I look at a momentum strategy. And right now, not surprisingly, technology is the leader in terms of quantity of contributors to that model portfolio, but also consumer discretionary. Jared mentioned earlier that the XLY hit a new high. And because this group was beaten up so badly on the way down, it tends to be among the better performers coming out of a bear market. So health care, technology, consumer discretionary, communication services, these are the leaders, at least for the near term.
SEANA SMITH: All right, Sam Stovall, chief investment strategist at CFRA, always great to get your perspective. Have a great night. Thanks so much for joining us.
SAM STOVALL: Thanks, Seana.
