According to Fundstrat, the recent hotter-than-expected January CPI report is unlikely to mark the peak of the stock market. Despite the sharp decline following the CPI report, Fundstrat believes that several bullish factors indicate that this downturn is more likely a “buy-the-dip” opportunity rather than a signal of a short-term top.
Fundstrat’s Tom Lee notes that the current sell-off is a typical profit-taking event, triggered by negative data that challenges the bullish narrative for the stock market in 2024, particularly regarding expectations of Federal Reserve interest rate cuts. Lee reassures long-term investors, suggesting that such sell-offs on bad news are normal and shouldn’t raise concerns about the market’s overall trajectory.
Interestingly, Lee highlights that a concerning indicator of a stock market peak would be a decline following positive economic news. This scenario, where the market reacts negatively to good news, would signal a shift in sentiment and investor behavior.
Lee observes that investors are currently reacting skittishly to any negative economic signals, leading to swift sell-offs. Paradoxically, this cautious sentiment, where skepticism prevails, actually provides confidence that the stock market hasn’t yet reached its peak. Lee suggests that at a true market peak, investors would be overwhelmingly bullish, viewing any dips as buying opportunities.
Furthermore, Lee points out that there is a significant amount of cash sitting on the sidelines, with a record $6 trillion in money market funds. Additionally, FINRA margin debt levels remain below their peak, suggesting potential for further inflows into the stock market, particularly if interest rates decline.
In conclusion, Fundstrat believes that the current sell-off is unlikely to signify a market peak, as there are still ample bullish factors supporting further upward movement. With cautious sentiment prevailing and substantial cash reserves available, Fundstrat anticipates that any dips in the market will likely be met with buying interest.
