Tom Lee recommends investors take a risk-on approach starting Wednesday as he expects markets will soon bottom. “We timidly recommend adding risk starting Wednesday as we see favorable shift in risk/reward into next week, even if only ‘close to the bottom,'” Lee, head of research at Fundstrat, wrote Tuesday. “Timid because it is August.” Stocks have sold off this month as rising yields, weak economic data out of China and a Fitch downgrade have investors concerned during what is also a period of seasonal weakness. The S & P 500 is lower this month by more than 4%, while the tech-heavy Nasdaq Composite is off by more than 5%. However, the strategist expects the stock market will soon resume its upward march. He said investors should get in ahead of Nvidia’s earnings results Wednesday evening and Federal Reserve Chairman Jerome Powell’s Jackson Hole address Friday. .SPX mountain 2023-07-31 SPX in August Lee thinks that equities are “showing early signs of diverging from higher rates,” meaning stocks are sensing that rates could top out soon. “Our view is a calculated bet that stocks are rising, despite higher rates, because the stock market is sensing this turn that [Fundstrat technical strategist Mark] Newton believes could happen in the next week or two,” Lee wrote. “In other words, we are saying the last push higher in rates will not proportionately hit stocks.” He also expects upcoming data will continue to show weakening inflation, citing several anecdotal reports. Next week, there is a raft of economic reports including the August jobs report and personal consumption expenditures. “[Our] view is this will support the picture of a glide path to lower inflation and a softening labor market,” Lee wrote. “Given the hawkish shift in investor expectations, I think this would further support a rise in equities.” At the same time, he said stocks historically rally following the Jackson Hole address. Since 2003, there have been seven occasions when the S & P 500 was lower in the two weeks prior to the central bank’s annual symposium. Following the address, stocks rose six out of those seven times. The one exception was in 2022 following very hawkish statements from the central bank leader. “So our constructive stance on buying ‘risk’ on Wednesday is that the bull market is intact and this August sloppiness is at the highest level of messiness,” he wrote.
Tom Lee says buy stocks now as ‘August sloppiness’ winds down