New York, NY – Fundstrat’s Tom Lee, one of Wall Street’s most optimistic equity strategists, has warned investors to prepare for a possible stock market correction. After the S&P 500 experienced a 21% surge over a 14-week period, Lee believes that a downturn is likely within the next few weeks.
According to Lee, historical data shows that when the S&P 500 has risen sharply over a short period, a market peak is often imminent. He pointed to seven instances since 1927 when the S&P 500 rose 13 out of 14 weeks, and in four of those instances, the market peaked within the following two weeks.
Lee also drew attention to a similar trading pattern that occurred during the bear market low in October 2022. The stock market saw a 20% jump over 16 weeks, followed by a 9% correction, and then rallied 21% over 19 weeks before experiencing an 11% sell-off. Given the recent 21% rise in the S&P 500, Lee believes a drawdown would not be unexpected.
He predicts a potential 7% decline, which would bring the S&P 500 to around 4,600 based on current levels. Lee also highlighted the Federal Reserve’s timing of interest rate cuts as a potential catalyst for concern among investors if the central bank waits too long and the economy begins to weaken.
Despite the short-term bearish outlook, Lee remains bullish on stocks for 2024, suggesting that the S&P 500 could ultimately rise to a range of between 5,200 and 5,400. “Ultimately this is a good year, we’re in a bull market,” Lee stated.