Stock Market

Buy Stocks Now After Huge Rout, Fundstrat Says

  • Buy the dip in stocks after Tuesday’s rout because the market bottomed months ago, Fundstrat says.
  • The S&P 500 historically bottoms shortly after inflation peaks, which many believe it did in June. 
  • The percentage of bearish stocks suggests this may be the lowest of the low, meaning it’s time to buy the dip.

Now is the time to buy the dip in stocks as data shows that inflation is falling and the market bottomed out in June, according to Fundstrat.

Stocks suffered their largest one-day decline in two years on Tuesday after the August Consumer Price Index report showed inflation slightly above expectations, clocking in at 8.3%. 

“But this does not mean stocks have to break below the June lows,” Fundstrat’s Tom Lee said in a note on Friday.

Although it did cement expectations for another aggressive rate hike by the Federal Reserve, Lee pointed to the fact that inflation was still coming down, declining .8 percentage points from June’s inflation reading of 9.1%. And out of the 14 reports of economic data that have rang in over the past two weeks, 12 showed signs of falling inflation, including the Producer Price Index, and surveys from the Institute from the Supply Management. 

A historical view of the S&P 500 shows the index bottoming after a peak in headline inflation. 

Lee also noted that the percentage of S&P 500 stocks in a bear market — those that have fallen more than 20% from their 52% week high — was at 73% in June, with anything above 70% typically representing a market bottom.

Lee thinks the recent sell-off could have taken the S&P 500 above that threshold again, flashing another signal for investors to buy.

“Even for those in the ‘inflationista’ camp or even the ‘we are in a long-term bear’ camp, the fact is, if headline CPI has peaked, the June 2022 equity lows should be durable,” Lee said. He previously predicted the S&P 500 would rally to all-time-highs of 4800, despite the index tanking in the first half of the year. That would mark a 24% increase from current levels. 

Source link

Leave a Comment