Tom Lee, renowned equity strategist at Fundstrat, has sounded the alarm on an impending stock market correction, despite his overall bullish stance on equities for 2024.
Lee pointed out that the S&P 500 has surged 21% over a span of 14 weeks, signaling a potential short-term peak in the market. He suggested that the index might reach around 5,000 before experiencing a downturn.
Drawing from market history, Lee identified seven instances since 1927 where the S&P 500 rose for 13 out of 14 weeks, similar to the current trend. In four of those instances, the market peaked within the following two weeks, indicating a precedent for a correction.
Lee also noted parallels with a trading pattern observed during the bear market low in October 2022. Back then, the market saw a 20% jump over 16 weeks, followed by a 9% correction, and then another 21% rally over 19 weeks before a subsequent 11% sell-off. Given the recent 21% rise, Lee believes a drawdown is likely.
He anticipates a 7% decline, potentially bringing the S&P 500 down to around 4,600 based on current levels. Lee suggested that concerns about the timing of Federal Reserve interest rate cuts could trigger investor apprehension, especially if the central bank delays action and economic conditions begin to deteriorate.
Despite the short-term bearish outlook, Lee reaffirmed his bullish view on the stock market for 2024. He believes that the S&P 500 could ultimately reach a range between 5,200 and 5,400, emphasizing that overall, it is a positive year and the market remains in a bull trend.
In summary, while Tom Lee remains optimistic about the long-term prospects of equities, he advises caution in the near term, warning investors of a potential correction in the coming weeks.
