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Fundstrat’s Tom Lee recommends buying as stocks continue to fall despite concerning economic data.
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Tech stocks have been slumping recently due to disappointing earnings and uncertainty in the semiconductor industry.
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Lee said upcoming Fed guidance and a potential rate cut could move the market in a positive direction.
It’s a great time to be an investor Buy when stock prices fallTom Lee, head of research at Fundstrat, said there were some signs of further upside in the market.
So far, The S&P 500 could nearly triple In 10 years, technology-driven Stock sale It’s actually a buying opportunity.
It’s a bold short-term call given the recent market meltdown, with the tech-heavy Nasdaq 100 dropping nearly 5% in just two days. Disappointing earnings Reporting and volatility Chip Sector.
Lee said a confluence of factors contributed to the selloff, including uncertainty surrounding the presidential election, ongoing geopolitical tensions and concerns about a slowing U.S. economy. recession.
But there are signs that the selling pressure may ultimately be limited, according to Mark Newton, the firm’s head of strategy.
“Overall, it’s still difficult to overestimate Thursday’s move as a ‘trend change’ or ‘trend break,’ as the uptrend remains intact,” Newton said, noting that the S&P 500 has a technical support level of 5,390. “We believe tech has also bottomed, so we can’t be too pessimistic following this pullback.”
Lee also cited four reasons why the market is more likely experiencing a “normal decline” rather than investors panicking over the risk of a potential recession.
1. Stocks have several catalysts ahead
The central bank is expected to provide further guidance on rate cuts in the weeks following its last policy meeting, and Lee said markets could move in a more positive direction if Fed officials signal a rate cut is imminent.
Meanwhile, July inflation figures are due to be released on Aug. 11. A slowdown in inflation could boost confidence in a rate cut and boost stock prices.
“This will ease concerns that the Fed is making a mistake,” Lee added.
Markets are fairly optimistic about where interest rates will go in the second half of the year. Investors are confident the Fed will start cutting rates in September and that the central bank could cut rates by 100 to 125 basis points by the end of the year. CME FedWatch tool.
2. Technical signals suggest that the decline will be limited
Newton said there isn’t much evidence that market underdogs such as small caps have peaked, but he added that Treasury yields have fallen in recent months as traders expect the Fed to cut interest rates, which is bullish for stocks in general.
“So buying low makes technical sense,” he said, adding that small-cap stocks “certainly look attractive” after the recent sell-off.
3. A Federal Reserve rate cut will be a turning point for markets
That’s because the rate cuts are expected to ease borrowing costs across several sectors. Certain types of debt, such as adjustable-rate mortgages and auto loans, are financed at shorter-term interest rates, so those sectors will be “positively impacted” by the rate cuts, Lee added.
4. Small caps are sending bullish signals
The Russell 2000 Index hit a 30-month high in July, which has happened only nine times in the past 45 years, and in each case the index rallied even higher three months later, Lee noted.
The index has also recorded small fluctuations, rising or falling by less than 1% in 11 of the past 12 trading days, which has only happened 10 times in the past 45 years, and each time the index was up six months later, he added.
Fundstrat is one of the most bullish Wall Street firms right now. Small caps up 40% A string of encouraging signs among small-cap companies have sent stock prices soaring.
Read the original article Business Insider
