Cameron Dawson, CFA Chief Investment Officer, NewEdge Wealth
As Chief Investment Officer, Cameron helps lead the development of NewEdge Wealth’s investment themes, strategies, and market views, while also working closely with the firm’s advisors and clients.
Prior to joining NewEdge Wealth, Cameron was the Chief Market Strategist at Fieldpoint Private Securities and a Senior Equity Analyst at Bank of America. Throughout her career, she has developed extensive experience in macroeconomics and implementing forward-thinking investment themes and asset allocation strategies. She is widely known for her differentiated and thoughtful financial commentary and frequently appears on Bloomberg, CNBC, and Fox Business, among many others. Additionally, Cameron is a Chartered Financial Analyst® (CFA®) and a former board member of the CFA Society® of Orlando.
As Chief Investment Officer, Cameron helps lead the development of NewEdge Wealth’s investment themes, strategies, and market views, while also working closely with the firm’s advisors and clients.
Prior to joining NewEdge Wealth, Cameron was the Chief Market Strategist at Fieldpoint Private Securities and a Senior Equity Analyst at Bank of America. Throughout her career, she has developed extensive experience in macroeconomics and implementing forward-thinking investment themes and asset allocation strategies. She is widely known for her differentiated and thoughtful financial commentary and frequently appears on Bloomberg, CNBC, and Fox Business, among many others. Additionally, Cameron is a Chartered Financial Analyst® (CFA®) and a former board member of the CFA Society® of Orlando.
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NewsTranscript
00:00 All right, one word we kind of like to use on the show
00:03 is don't chase, don't chase.
00:05 But there's things not to chase in the market.
00:08 Dennis points out to me, you know,
00:09 that as, you know, that as SPY versus the triple Qs
00:14 and then the IWM, let the chase begin.
00:18 Where should it start?
00:19 Where's the starting line?
00:21 - Well, clearly so many parts of the market
00:23 were deeply oversold as you guys were just discussing.
00:26 And if you looked at things like small caps
00:29 and cyclical, certain parts of cyclicals,
00:31 you could see rallies of 10, 11, 12% from the October lows
00:36 just to get you back to your 200 day moving average,
00:39 which just mean that a lot of these areas
00:42 were left for dead.
00:43 I think there then kind of sparks the discipline
00:46 that will be needed and you'll have to watch very closely
00:49 as we start bumping up into that overhead resistance,
00:52 which is probably for some of these areas,
00:55 another three to 5% up from here.
00:58 How do they interact with that resistance?
01:00 And is this move something that is more sustainable
01:03 or if this really is just a knee jerk
01:05 kind of mean reversion trade
01:08 that is just happening very, very quickly.
01:11 - There's the million dollar question.
01:13 Is this sustainable?
01:14 What does Cameron Dawson think?
01:16 Because obviously, you know,
01:17 you've been on the bear chain correctly in a lot of stocks
01:19 because a lot of stocks have been very weak,
01:22 basically for two years.
01:23 I mean, people can talk about the raging bull market,
01:25 but the S&P has made a high for almost two years.
01:28 So that's kind of the definition of a bear market here
01:30 is not making new highs.
01:31 It's been a long time.
01:32 This year, I don't think we've made any new highs at all.
01:35 I think it's actually at the beginning of 2022.
01:38 So we're going on almost two years
01:39 without a new high in the S&P.
01:40 And we look at the IWM and it's almost 30%
01:43 off the all time high.
01:44 So significantly off.
01:45 So is this sustainable?
01:47 Are we past, like we beat,
01:49 like it appears that we are beating inflation.
01:51 I don't know if we beat it yet.
01:52 Is this rally sustainable?
01:55 - I think at least the first step
01:57 is through the end of the year.
01:58 I would expect it to be just because the largest weights
02:01 in the index, the tech, the Magnificent Seven,
02:04 the communication services stocks,
02:06 those being the largest weights being up a lot,
02:09 you're not going to see the same kind
02:10 of tax loss harvesting dynamics
02:12 like we saw into the end of last year,
02:14 which really caused markets to be weak going into December.
02:18 So there's going to be, we think, some kind of chase,
02:20 at least into the end of the year,
02:22 meaning that you get people drawn into the market,
02:24 you have trend following strategies.
02:26 Once you've broken through resistance,
02:28 those strategies add more length to the market buying,
02:31 begets more buying,
02:33 and you could see this chase through the end of the year.
02:36 And then I think there's a really important assessment
02:39 that has to happen.
02:40 And if we go through kind of the key drivers
02:42 of markets outside of just the fundamentals,
02:46 we have to consider things like sentiment.
02:49 How bullish is everybody?
02:50 Has everybody already gotten on the train
02:52 of being extraordinarily optimistic about the world?
02:56 Similar to the start of 2022,
02:58 when there was just widespread optimism.
03:01 We'll look at valuations.
03:02 Valuations aren't good timing tools,
03:04 but what we have seen over the last few years
03:07 is that outside of that COVID period,
03:10 where we were growing money supply at 30%,
03:12 the balance sheet was up by the trillions of dollars,
03:16 where we saw this really big surge in valuations,
03:20 that valuations have typically topped out
03:22 around 19 and a half to 20 times forward on the S&P 500.
03:26 That's where they peaked in early 2020.
03:29 That's where they peaked in July of this year.
03:31 So let's see where we stand on valuations.
03:33 Then it's a matter of looking at earnings expectations.
03:36 It's really important to remember
03:39 that the market is always looking the next year forward.
03:42 So we price in the earnings recession
03:45 that we've experienced this year back in 2022.
03:48 This year in 23,
03:49 we are now pricing in the earnings recovery
03:51 that's already being forecast in 24.
03:54 So let's watch and see where expectations go
03:56 through 24 as we look to 2025.
04:01 And the last one is just watching positioning
04:03 because positioning is probably the driver
04:06 that I most underestimated at the beginning of 2023,
04:10 saw it being a big driver in 2022.
04:13 And I think that where we're looking at positioning now
04:16 is watch things like Deutsche Bank
04:18 consolidated positioning, Goldman Sachs
04:20 publishes one as well.
04:23 What they show is that you're overweight
04:26 from an equity perspective.
04:27 You're in the, let's think of it as one standard deviation
04:30 is in stretch positioning in the Goldman measure.
04:35 0.7, 0.8 is about where we are.
04:37 So you're not at the point yet where positioning
04:39 is a risk in and of itself, but you're getting close.
04:42 So chase into the end of the year,
04:44 watch positioning, watch valuation,
04:46 watch earnings expectations and watch sentiment
04:49 because those will all be really important drivers
04:51 we think into 24.
04:53 Okay, well, there's always surprises in the market, right?
04:57 And there's always things that could trip up this rally
05:01 going into the year end.
05:03 You've identified a couple things.
05:06 What do we need to keep an eye on
05:08 that can maybe spoil the party into the year end?
05:12 I would watch really closely the dot plot
05:14 in the December meeting for the Fed.
05:17 And the reason I say that is that the dot plot now
05:20 forecasts two rate cuts in 2024.
05:24 And there's a lot of argument to say
05:26 that the dot plot doesn't matter
05:28 and that there's no signal.
05:29 It's just throwing spaghetti against the wall,
05:32 which could be very true,
05:34 but it does capture somewhat where the Fed's mind is.
05:38 And if we see the dot plot show even more cuts in 2024,
05:43 that would effectively confirm what the bond market
05:46 has already priced in.
05:48 But if they hold pat and the median forecast stays the same,
05:53 it's not to say that they can't change their forecast
05:56 going forward, but that 25 basis points of cuts,
05:59 because we're not gonna get that extra hike
06:01 likely in December, that 25 basis points of cuts
06:05 is obviously very different than the 100 basis points
06:08 that's being priced in by the bond market.
06:11 If we don't get the confirmation from the Fed
06:14 or the data that that 100 basis points of cuts is justified,
06:18 that's where you start seeing that floor under yield
06:21 start to emerge.
06:22 So watch really the four to 4.3% on the 10-year treasury
06:27 as the area of support.
06:30 I would expect the next line of support would be 4.3%.
06:33 And then you might lose a little bit of that tailwind
06:36 from the yields coming down to boost markets higher.
06:40 So watch that closely.
06:41 And I see you pull up economic surprises.
06:43 This is the other really important one.
06:46 - Okay, all right, go ahead.
06:49 - Yeah.
06:49 - What is the detail on that?
06:52 - This is in picture format,
06:55 the reward for being optimistic,
06:58 which is that if you go back to the October lows,
07:01 what you can see is that economic data started coming in
07:05 better than expected.
07:06 If you zoom this out a little bit further,
07:08 what you can see is that through 2022,
07:11 a lot of economic data was surprising to the downside,
07:14 not the upside.
07:15 That was causing a lot of people to reduce estimates,
07:18 cut estimates.
07:19 We had an EPS revision down cycle
07:21 through the course of 2022.
07:24 2023 has been a very different story.
07:26 Economic surprises have been moving higher,
07:29 which just means that economic data
07:31 is continuously surprising to the upside.
07:34 So what you've seen is estimate revisions higher,
07:37 and that has supported earnings estimates
07:39 all through the year.
07:40 The really interesting thing is that economic surprises
07:43 peaked in July, right before the market peaked
07:46 in that kind of choppier trading period
07:50 that we've been in since early August.
07:52 What's very interesting is that now over the past month,
07:56 economic surprises have continued to deteriorate,
07:59 yet the market has rallied a lot.
08:01 This relationship doesn't have to hold.
08:04 It can be more spurious,
08:06 meaning it's kind of like eye correlations.
08:09 That's very fair.
08:11 However, if economic surprises continue to deteriorate,
08:14 that means estimate revisions are going lower.
08:17 You lose that support,
08:19 potentially enter into an EPS revision down cycle,
08:22 and then that starts raising the question
08:25 about where valuations stand, et cetera.
08:27 So watch that really closely,
08:29 because usually those big divergences
08:31 with soaring stock prices
08:33 and falling economic surprises don't last.
08:36 One can come up to meet the other and vice versa.
08:38 So it's an important relationship
08:40 and one that we'll continue to watch.
08:42 All right, one thing that has worried us about the market
08:46 is just it's been the big tech.
08:48 Yesterday, other companies picked up the slacks,
08:51 a little bit more of a broad-based rally.
08:53 Can big tech continue to lead here in 2024?
08:59 Yeah, I mean, it's been pretty incredible.
09:02 To quote the great Trisha Yearwood,
09:05 we've been living in a one-horse town,
09:08 and that horse has just been tech.
09:11 And tech has been so very dominant,
09:14 but I think let's take a step back
09:16 and think about the setup going into 2023,
09:19 which is that if we go down that list of sentiment,
09:23 sentiment was very poor on tech going into '23.
09:26 Fears about rates increasing,
09:28 all of the cost-cutting that tech companies had done,
09:31 and new questions about business models.
09:33 Valuations, though, had fallen 30%
09:36 over the course of 2022 for tech.
09:38 Earnings estimates had been revised down pretty materially
09:42 in the out years because of some of the stumbles
09:45 that tech had, and positioning was really light.
09:47 People sold tech into the end of the year,
09:50 actually at a record pace,
09:52 in order to do the tax-loss harvesting.
09:55 So that set an incredibly low bar for tech into 2023.
09:59 Now, as we roll into '24, it's the exact opposite world.
10:03 So you have valuations are up 40% from the October lows.
10:08 You have positioning that is extraordinarily crowded.
10:11 You have earnings estimates that have been revised higher
10:13 by about 5%.
10:15 And then you have sentiment, which is very optimistic.
10:18 And all this talk about, well, I get a call option on AI,
10:22 and the best businesses, and super resilient.
10:25 And all of that may be very true,
10:27 and it's just a matter of how much
10:30 have we already priced in?
10:32 So I would not be too surprised
10:34 to see a leadership rotation in 2024,
10:38 just like we saw a leadership rotation in '23.
10:41 And then the question is,
10:42 does that leadership rotation happen
10:44 because tech is falling while other things are doing better?
10:48 Or does it happen where tech just goes up less
10:51 because other parts of the market have more room to run,
10:55 because they're more oversold, unloved, cheaper,
10:57 and nobody's there from a positioning perspective?