"Wall Street Oracle" predicts: US stocks may experience a 7%-10% pullback!
Wall Street strategist Tom Lee predicts that the US stock market will experience a 7%-10% pullback in the next eight weeks, which may become a buying opportunity for investors. Lee believes that investors should remain cautious as the market typically shows weakness in September, while facing pressure from the Federal Reserve policy meeting and the US presidential election. Despite this, he thinks that now is a good time to buy on dips. However, Lee also expresses concerns about the volatility that the August employment data may cause, emphasizing that uncertainty could affect rate cut expectations
Fundstrat co-founder and head of research Tom Lee predicts that the stock market will experience some turbulence in the next eight weeks, although he believes that the pullback could be a buying opportunity for investors.
Lee expects that the S&P 500 Index (SPX) may pull back by 7% to 10%, as investors are going through historically the weakest month of the year. The Stock Trader's Almanac shows that since 1950, the index has averaged a 0.7% decline in September each year.
In an interview with CNBC's "SquawkBox Europe" on Tuesday, Lee said, "I think investors should be cautious in the next eight weeks. The stock market has been up in 7 out of 8 months this year, so we know this is a very strong market. But we are heading into the September Fed policy meeting and the U.S. election, which will make people nervous."
However, he continued, "I think people will have the opportunity to buy in the next eight weeks. In other words, caution is good, but be prepared to buy on dips."
Lee is concerned that the disappointing July non-farm payroll data reigniting growth concerns and leading to the sell-off on August 5th could be a catalyst for some volatility in the August jobs report released on Friday.
On the contrary, the strategist is now more concerned that the August data may come in hotter than expected, which could dampen expectations for a rate cut in September.
According to CME's "FedWatch" tool, the market is pricing in a 67% chance of a 25 basis point rate cut by the Fed in September, while others see an opportunity for a 50 basis point cut.
Lee was one of the earliest Wall Street strategists to be bullish on stocks during the peak of the COVID-19 pandemic, and has been accurately predicting the rise of U.S. stocks, earning him the nickname "Wall Street's Oracle". This year, he has also made some bold short-term decisions, including predicting a shift to small-cap stocks