Renowned strategist Tom Lee from Fundstrat remains optimistic about the stock market’s prospects in 2024, but he’s not ruling out a potential hiccup along the way. Lee has issued a warning, forecasting a market pullback in the first quarter of 2024. Despite being one of Wall Street’s most bullish strategists for the year, Lee emphasizes that the upward trajectory of stocks won’t be without its fluctuations.
Lee’s cautionary note to clients on Friday highlighted four key reasons supporting his expectation of a stock market pullback in the coming months. While he envisions the S&P 500 reaching an all-time high in January, with an optimistic outlook for continued gains throughout the year, he anticipates a temporary setback, projecting a pullback of around 5% in February or March.
The strategist set a year-end S&P 500 target of 5,200, emphasizing the significance of hitting an all-time high but cautioning against expecting a seamless continuation of the upward trend. Lee anticipates a consolidation period for the stock market after a robust 16% rally since the end of October.
According to Lee, the following four factors contribute to his expectation of a post-January pullback:
- Market Anticipating More Interest Rate Cuts: The discrepancy between the Federal Reserve’s projection of three interest rate cuts in 2024 and the market’s expectation of six could lead to volatility. Any adjustment in expectations regarding the frequency of interest rate cuts may result in downside pressure on stocks.
- Potential AI Timeline Delay: Lee raises the possibility of a delay in artificial intelligence (AI) advancements due to a “systematic hack” by malevolent AI, introducing an element of uncertainty that could impact market sentiment.
- Consolidation of Parabolic Gains: Lee emphasizes the need for equity markets to consolidate the parabolic gains witnessed in late 2023, suggesting that a temporary pullback is a natural part of the market’s growth trajectory.
- Election Year Seasonal Trends: Aligning with historical patterns, Lee points out that a drawdown in February/March corresponds with election year seasonal returns, indicating a potential cyclical influence on market dynamics.
While Lee anticipates short-term market fluctuations, he remains optimistic about the overall trajectory, echoing sentiments that any dips in the market should be viewed as buying opportunities. Technical strategist Mark Newton suggests that the substantial cash reserves on the sidelines could act as a catalyst to swiftly recover from any temporary setbacks.
