Investors should buy the dip as the stock market will keep climbing amid a trifecta of bearish voices, Fundstrat says
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- Investors should buy the dip and can expect stocks to keep rising, according to Fundstrat's Tom Lee.
- Lee said extreme bearishness means most are underinvested in stocks.
- He predicts the index will hit 4,750 this year, retesting an all-time-high of 4,800.
Investors should buy any dip in stocks and can expect the market to keep moving higher from here, according to Fundstrat's head of research Tom Lee.
Lee, who has been bullish on stocks through most of the past year's bear market, pointed to the S&P 500's strong performance relative 2023, with the benchmark index rising 12% from levels in January. Market breadth, a measure of stocks in the market that are gaining, is also increasing, with tech, small-cap, industrial, and regional bank stocks all moving up in the past month.
That momentum could carry through the rest of the year, Lee suggested, particularly if easing inflation leads the Fed to pause its interest rate hikes. Markets have priced in a 71% chance the Fed will pause rate hikes in June.
Meanwhile, Lee has forecast the S&P 500 to notch 4,750 by year-end, retesting its all-time high of around 4,800.
"This really strengthens the case to buy the dip and expect stocks to continue to rise – that is, if the national and consensus view is caution, then that means most are underinvested," Lee said in a note on Wednesday.
He added that a "trifecta of bearishness" has been coming from sell-side strategists, institutional investors, and retail investors, who are all showing overall pessimism towards stocks. But high levels of pessimism could be a contrarian indicator for the market: the S&P 500 saw gains over the next 12 months 94% of the time when investors were this bearish in the past, according to research from Bank of America.
Lee is among the most bullish voices on Wall Street, making the case for investors to enter the market despite fears of a coming recession. Previously, he predicted the S&P 500 would notch an all-time high in 2022, though the index ultimately finished 20% lower.