-
Tom Lee of Fundstrat advises buying stocks as they continue to fall despite worrying economic data.
-
Technology stocks have been stumbling lately on disappointing earnings and volatility in the chip sector.
-
He tells me that the upcoming guidance from the Federal Reserve and a potential interest rate cut could turn the markets in a positive direction.
It’s the right time for investors. buy dip stockwith the market showing a number of signs that more upside is on the way, according to Fundstrat’s head of research, Tom Lee.
The very optimistic analyst, who previously forecasted S&P 500 Index Could Nearly Triple By the end of the decade, as technology-driven development continues, Sell shares It is actually a buying opportunity.
It’s a bold short-term call in light of the recent market rout. The tech-heavy Nasdaq 100 has lost nearly 5% in just two days amid Disappointing earnings Reports and fluctuations in Chip sector.
He tells me that the sell-off was likely driven by a combination of factors, such as uncertainty surrounding the presidential election, ongoing geopolitical tensions, and ongoing concerns about recession.
But there are signs that selling will ultimately be limited, according to Mark Newton, the company’s chief strategy officer.
“Overall, it’s still hard for me to put a lot of confidence in Thursday’s price action in terms of ‘trend change’ or ‘trend breakout’ and the uptrends are still intact,” Newton said, pointing to technical support at 5,390 on the S&P 500. “I’m willing to bet that technology has also bottomed out, and I can’t be too negative after this pullback.”
He also outlined four reasons why markets are likely experiencing a “natural decline,” as opposed to investor panic over the threat of a potential recession.
1. Stocks have a number of catalysts ahead.
Central bankers are expected to provide more guidance on rate cuts in the weeks after their latest policy meeting, and Lee said that could turn markets in a more positive direction if Fed officials signal that a rate cut is coming soon.
The July inflation reading is due on August 11. Slowing inflation could also boost confidence in interest rate cuts, which could boost stocks.
“This is likely to allay concerns that the Fed is making a mistake,” Lee added.
Markets are very optimistic about the path of interest rates later this year. Investors have certainly priced in that the Federal Reserve will begin cutting rates in September, and that central banks could cut rates by 100 to 125 basis points by the end of the year, according to a Fed report. CME Feed Watch a tool.
2. Technical signals indicate that the downtrend is limited.
Newton said there’s little evidence that underperforming areas of the market, such as small-cap stocks, have peaked. At the same time, Treasury yields have fallen in recent months as traders anticipate a rate cut by the Federal Reserve, which is typically seen as positive for stocks, he added.
“Buying stocks on dips makes technical sense,” he added, adding that small-cap stocks look “certainly attractive” after their recent slide.
3. Fed rate cuts will be a turning point in the market
That’s because lower interest rates are expected to ease borrowing costs in many sectors. Lee added that certain types of debt, such as adjustable-rate mortgages and auto loans, are financed at short-term interest rates — meaning these sectors are “positively impacted” by lower interest rates.
4. Small cap stocks are sending bullish signals.
The Russell 2000 hit a 30-month high in July, something that has happened only nine times in the past 45 years. And each time, the index was higher three months later, Lee noted.
He added that the index also recorded small movements, rising or losing less than 1% in 11 of the last 12 trading days. We have seen that only 10 times in the past 45 years, and each time the index was higher after six months.
Fundstrat is among the most bullish firms on Wall Street right now. Recently, Lee has been calling for 40% rise in small-cap stocks Small cap stocks rose, thanks to a series of positive signals emerging among small cap companies.
Read the original article on Interested in trading