Disappointing earnings season could drive contingent selling, says Ned Davis' Tim Hayes
Summary
Tim Hayes of Ned Davis Research says the US equity bull market is mature and vulnerable, with complacent sentiment and weak breadth, making the market sensitive to disappointing earnings. He favors emerging markets, where breadth and valuations are attractive, and sees a rotation from US big-cap tech into better-value EM tech. He also highlights EM currency recovery helping Brazil, commodity/materials support for South Africa, and the tech/semiconductor tailwind for Taiwan and Korea. Ned Davis maintains a modest overweight to equities overall, citing Fed support and its don't-fight-the-tape/Fed framework.
- Tim Hayes calls the US bull market mature and vulnerable.
- He cites weak breadth, complacency, and lack of strong momentum.
- He emphasizes emerging markets on strong breadth and attractive valuations.
- He sees rotation from US big tech to better-value EM tech.
- Brazil benefits from EM currency recovery.
- South Africa benefits from commodities and materials.
- Taiwan and Korea benefit from the tech/semiconductor theme.
- Ned Davis maintains a modest overweight to equities, citing Fed support.
Ideas
US equities vulnerable into earnings season.
He says the US equity bull market is mature and vulnerable. It has lasted twice as long as the median since 1900 and is the ninth longest, allowing sentiment to get very optimistic and the market to become complacent. Breadth has been weak and strong momentum is lacking, so disappointing earnings could drive contingent selling.
Emerging markets lead on strong breadth.
He emphasizes emerging markets because breadth there has been very strong. A turning point came after Trump's inauguration and the DeepSeek announcement, after which the US started to underperform on tariff worries while EM held its own and accelerated. He cites relatively attractive valuations, especially in EM tech, recovering EM currencies, commodity/materials strength, and broad participation across Brazil, South Africa, Taiwan, and Korea. The model suggests these trends can continue.
Brazil helped by EM currency recovery.
Brazil is one of the EM markets participating in the broad EM strength, helped by the recovery in EM currencies.
South Africa benefits from commodities.
South Africa is benefiting from the commodity and materials emphasis in that market as materials and metals recover.
Taiwan, Korea gain from tech theme.
Taiwan and Korea are benefiting from the tech theme as Asian markets leveraged to semiconductors participate in the broad EM rally.
Rotate to EM tech from US tech.
He sees a rotation within tech away from US big-cap tech into better-value emerging-market tech. After a major big-tech earnings report, big tech became a problem, and the US tech sector has been the weakest in the US, while EM tech has been making new highs and is up 20% in 21 days. Investors are not necessarily leaving tech but transitioning to cheaper tech outside the US, with the median P/E of top EM stocks well below US tech peers.
Rotate to EM tech from US tech.
He sees a rotation within tech away from US big-cap tech into better-value emerging-market tech. After a major big-tech earnings report, big tech became a problem, and the US tech sector has been the weakest in the US, while EM tech has been making new highs and is up 20% in 21 days. Investors are not necessarily leaving tech but transitioning to cheaper tech outside the US, with the median P/E of top EM stocks well below US tech peers.
Stay modestly overweight equities on Fed support.
He maintains a modest overweight to equities. The firm follows 'don't fight the tape and don't fight the Fed,' and he sees the Fed as one of the positives. He does not yet think it is time to get out and expects the market to try to work higher, with earnings the key test for renewed momentum or disappointment.
