While Bank of America is advising investors to short the S&P 500 (SPY), Fundstrat’s head of technical strategy, Mark Newton, sees signs that are pointing to a potential bottom in the stock market. In an interview with CNBC, he noted that extreme selling pressure and weak market breadth—two common signs of capitulation—suggest that the worst of the decline could be over or that the market is at least in the process of stabilizing.
Newton highlighted that the rebound in tech and financial stocks, especially the “Magnificent Seven,” is a positive sign. These leading stocks, which had taken a beating, are now showing strength and recovering from recent lows. However, he warned that investors shouldn’t expect a rapid comeback. He predicted the market is more likely to follow an “L-shaped” recovery, which means that it could trade sideways for 30 to 60 days before mounting a more sustainable rally.
“We’re likely trying to put in some type of a low,” Newton said, but emphasized that “a lot of damage has been done.” Instead of a quick return to record highs, he expects a slow and choppy recovery as investors regain confidence and try to digest recent economic and geopolitical uncertainties. While optimism is growing, patience will still be needed in the weeks ahead.
Is SPY a Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 412 Buys, 84 Holds, and eight Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $616.20 per share implies 16.1% upside potential.
