Stock Market to Bottom Amid Fresh Selling, Wait to Buy the Dip: Fundstrat

• Investors shouldn’t rush to buy the latest dip in the stock market, Fundstrat’s Tom Lee said.
• That’s because volatility is rising, which could bring near-term pressure to stocks.
• The market could be less than a month away from hitting a bottom, Lee predicted.

Don’t buy the dip in stocks just yet — there’s a wave of selling that could see the market bottom out in the coming weeks, according to one of Wall Street’s biggest bulls.

Tom Lee, Fundstrat’s head of research and one of the most bullish stock forecasters this year, issued a word of caution for investors looking for opportunities amid the market sell-off. Stocks have slumped after taking in a hot inflation report for March, escalating tensions in the Middle East, and hawkish guidance on Fed rate cuts, causing the S&P 500 to notch four straight days of losses.

But opportunistic investors shouldn’t rush into stocks just yet, Lee said, pointing to a surge in the VIX, the market’s volatility gauge. Higher volatility typically triggers selling among investors, he warned, which could lead to near-term pressure for stocks.

“While we normally like to buy dips, as we said earlier this week, the surge in the VIX says we gotta take buying the dip extra slowly,” Lee said in a video sent to clients on Thursday.

A buying opportunity could come soon, as the market looks poised to bottom, Lee said. That’s largely because the positive catalysts for stocks are still in play, like strong corporate earnings growth. The S&P 500 is on track to report earnings growth of over 7% for the first quarter, per estimates from FactSet.

The Fed also looks poised to cut interest rates sometime this year, even if rate cuts could be delayed further than investors are expecting. Markets are now pricing in one or two rate cuts by December, according to the CME FedWatch tool.  

Lee predicted markets could hit a trough within the next month or possibly sooner, assuming that Middle East conflict does not escalate further, volatility eases, and investors show signs that they’re slowing their pace of selling.

“This pullback, I think, is very good because it’s providing good entry points,” Lee said. “All the things that are supporting stocks are still in place.”

Lee predicted the S&P 500 could hit 5,200 by the end of the year, but has noted the index could notch 5,500 or higher in the best-case scenario. He was spot-on in his 2023 stock forecast, correctly calling a 20% gain in the benchmark index.