TOM LEE says "PERCEPTION IS REALLY IMPORTANT FOR MARKET..."

Summary

In this video, Tom Lee from Fundstrat discusses market trends, suggesting a rotation from large caps to small caps, influenced by potential policy changes and Federal Reserve actions. He highlights the Russell 2000's potential, while Mark Newton, a chief market technician, uses the Ichimoku indicator to analyze various indices, emphasizing the importance of technical analysis in trading decisions.

Takeaways

• 📈 Tom Lee predicts the S&P 500 will be flat for August, unlike his previous bullish calls.
• 🔄 There is a rotation in the market, moving away from large caps towards small caps, influenced by recent earnings reports from companies like Tesla and Google.
• 💰 The Federal Reserve's potential interest rate cuts are seen as beneficial for small caps and regional banks, boosting confidence in mergers and acquisitions.
• 🌐 Overseas market movements, such as the unwinding of the 'Jip Jip Chan carry trade,' have impacted the NASDAQ but are not the primary focus for Tom Lee.
• 📊 The Russell 2000 index has a median PE of 11 and earnings growth 800 basis points faster, indicating potential for strong performance.
• 📚 Historical data shows that when the Russell 2000 has significant daily moves, the market tends to perform well in the subsequent months.
• 🤔 Tom Lee suggests that the market's rotation might be driven by expectations of a Trump White House, though he avoids delving into political specifics.
• 💡 The potential for deregulation and regional banks performing better under a Trump administration is seen as a catalyst for small cap stocks.
• 🌐 Tom Lee believes that the interplay between a potential Fed cut and a Trump White House is positive for small caps.
• 🔍 The upcoming earnings report from Nvidia is seen as a key indicator for the market's direction, especially for large cap tech stocks.

Q & A

What is Tom Lee's prediction for the S&P in August?

Tom Lee predicts that the S&P is probably going to be flat for August overall.

What type of market rotation did Tom Lee observe?

Tom Lee observed a painful rotation away from large caps, accelerated by Tesla earnings and Google, due to uncertainty about the Fed's commitment to cutting.

Why does Tom Lee believe small caps are a good investment at the moment?

Tom Lee believes small caps are a good investment because when the Fed starts cutting, it's good for small caps and regional banks, and there has been an overseas unwind of the carry trade that hurt the NASDAQ.

What is the current P/E ratio of the Russell 2000 according to Tom Lee?

The Russell 2000 has an 11 median P/E ratio, according to Tom Lee.

What historical performance trend does Tom Lee refer to for the Russell 2000?

Tom Lee refers to a historical performance trend where the Russell 2000 posted 11 days with 10 out of 11 days having a 1% move, and in such instances, the market was up 100% 1 month, 3 months, 6 months, and 12 months later.

What does Tom Lee suggest about the market's perception of the upcoming presidential election?

Tom Lee suggests that the market is currently pricing in a 65% probability of a Trump White House, which is driving the rotation towards small cap stocks and regional banks.

What is the expected impact of a Fed cut on small caps according to Tom Lee?

According to Tom Lee, a Fed cut is expected to lower the cost of money, which is good for small caps and regional banks, potentially boosting CEO confidence and benefiting M&A activities.

What does Tom Lee think about the potential for large cap stocks in the near future?

Tom Lee believes that while large cap stocks like the NASDAQ and S&P 500 might see a slowdown, there is a visible catalyst for small caps, suggesting investors might take some profits.

What is the significance of Nvidia's upcoming earnings report according to Tom Lee?

Tom Lee considers Nvidia's upcoming earnings report as the line in the sand, which will be a significant determining factor for the market's reaction and could influence the rotation trend.

What technical indicator does the speaker in the second part of the transcript use to analyze market trends?

The speaker uses the Ichimoku indicator to analyze market trends and identify whether a stock is in an uptrend or downtrend.

What does the speaker suggest about the current state of the QQQ ETF?

The speaker suggests that the QQQ ETF, which represents many large-cap technology stocks, is currently inside the cloud, indicating indecision in the market and recommending caution for entering long positions.

What is the bullish harami candlestick pattern mentioned in the script, and what does it signify?

The bullish harami is a double candlestick pattern where a smaller bullish candle follows a larger negative candle, signifying a potential reversal from a downtrend to an uptrend.

What is the speaker's recommendation for trading the S&P 500 ETF based on the Ichimoku indicator?

The speaker recommends sitting on hands and not entering a long position in the S&P 500 ETF based on the Ichimoku indicator until there is confirmation that the price is above the moving averages and the cloud turns bullish.

What is the significance of the tenkin and keinon lines in the Ichimoku indicator?

The tenkin (conversion line) and keinon (baseline) are part of the Ichimoku indicator, with the tenkin being a faster moving average and the keinon a slower one. When the tenkin drops under the keinon, it is considered a bearish sign.

What does the speaker suggest about the Russell 2000 index compared to other indices?

The speaker suggests that the Russell 2000 index, which represents small-cap stocks, is showing bullish signs and might perform better than other indices like the S&P 500 or the QQQ ETF.

What is the speaker's view on the DIA ETF based on the Ichimoku indicator?

The speaker views the DIA ETF as weak based on the Ichimoku indicator, as it is under the keinon and not showing a buy signal, recommending not to enter a long position.

What is the difference between the S&P 500 ETF (SPY) and the S&P 500 Equal Weight ETF (RSP) mentioned in the script?

The S&P 500 Equal Weight ETF (RSP) gives equal weight to all the stocks within the S&P 500 list, unlike the S&P 500 ETF (SPY) which does not, making the RSP a potentially better investment for diversified exposure to smaller companies within the index.