The stock market is providing investors with another opportunity to ‘buy the dip’ as hoarded cash builds up and the economy continues to expand, Fundstrat said.

Thomas Lee Tom Lee Fundstrat

Tom Lee.Brendan McDermid/Reuters

  • According to Fundstrat, a slight decline in the stock market over the past week represents another opportunity to “buy the dip” for investors.

  • Fundstrat pointed to the market awakening from IPOs, a growing pile of cash set aside and a booming economy as reasons why investors should buy.

  • “It looks more and more like an economy sliding into expansion, not recession.”

According to Fundstrat’s Tom Lee, the 2% decline in the stock market over the past week represents another opportunity to “buy the dip” for investors.

He pointed out that while many investors are wondering if a top has been reached after the S&P 500’s 14% year-to-date rally, they should buy stocks instead.

“As of March 2023, the ‘buy the dip’ regime has been in place and is based on measuring the resilience of stocks in the face of a sell-off,” Lee explained in a Friday note. “Stocks recovered from their losses quite quickly. And we generally view this pullback as a consolidation and stocks will recover soon.”

His confidence stems from three key factors, including the awakening of the IPO market after Cava’s successful debut, a growing pile of shelved cash totaling over $5 trillion, and an economy that is still in mode. of expansion.

The IPO market

“The IPO market is coming back to life. There have been several high-profile IPOs in the past week, including Cava. IPOs are a way for institutional investors to expose themselves to risk, as they allocate and are participating in new issuances. For the month of June-to-date, IPO issuances totaled $30 billion, which exceeds the $19 billion issued in June 2022.”

Money shelved

“Cash on the fringe remains monstrous at $5.5 trillion. And as data from Pantheon Macro shows, the top 1% of households have increased their cash balances by 52% since 2019. Wow. And the 80th at the 99th percentile increased its cash balances by 32%. This is staggering and shows how deeply skeptical the public remains.”

A growing economy

Lee pointed out that the economy still appears poised for growth despite fears of a potential recession, as evidenced by a recent surprise jump in housing starts and an improving outlook for corporate earnings.

“The 2Q23 earnings season is approaching and more and more strategists are noting that it looks like non-energy EPS growth could turn positive year-over-year. That would be a positive development for risk,” he said. he declared.

Lee expects the upcoming data to reinforce his view that the economy remains in expansion mode, with the June jobs report showing continued strength while inflation reports could show a slowdown. continued.

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