Don't rush to buy the dip! "Wall Street Oracle" warns: a wave of selling in US stocks will occur in the next few weeks
Opportunistic investors should not enter the market hastily. The market volatility index VIX is soaring, and an increase in volatility typically triggers selling by investors, which could put short-term pressure on the stock market
According to the Zhitong Finance and Economics APP, Tom Lee, co-founder and research director of the financial market research firm Fundstrat, known as the "Wall Street Oracle," has warned against buying into the stock market during a downturn. He predicts a wave of selling in the stock market in the coming weeks before it truly hits bottom.
Due to factors such as the US March CPI data exceeding expectations again, escalating tensions in the Middle East, and hawkish guidance from the Federal Reserve on interest rate cuts, the US stock market has performed poorly this week, with the S&P 500 index falling for four consecutive days.
Tom Lee, who made very accurate predictions about the S&P 500 index trend for 2023, is one of the most bullish analysts on the stock market this year. However, he warns that opportunistic investors should not enter the market recklessly. He points out that the market volatility index VIX is surging, and rising volatility typically triggers investor selling, which could put short-term pressure on the stock market.
Tom Lee stated, "Although we usually like to buy on dips, the surge in the volatility index indicates that we must wait to buy on dips." He added that as the market appears to be nearing a bottom, buying opportunities may soon arise, largely due to positive catalysts still at play in the stock market, such as strong corporate earnings growth. According to FactSet's forecast, the S&P 500 index is expected to see earnings growth of over 7% in the first quarter.
The Federal Reserve also seems prepared to cut interest rates at some point this year, even though the timing of the rate cut may be later than what investors expect. The FedWatch tool from the Chicago Mercantile Exchange (CME) shows that the market currently expects the Fed to cut rates one to two times before December this year.
Tom Lee mentioned that if the conflict in the Middle East does not escalate further, market volatility eases, and investors show signs of slowing down their selling pace, then US stocks may hit bottom next month or even earlier. He also stated, "I think this pullback is very healthy as it provides good buying opportunities." "All the factors supporting the stock market are still in place." Tom Lee predicts that the S&P 500 index could reach 5200 points by the end of the year. In the best-case scenario, he believes the index could reach 5500 points or higher