The market reversed course this week after a pair of inflation reports spooked investors by suggesting that rate cuts may not be imminent. A bullish analyst, who was accurate with his predictions for 2023, said on Friday he sees the decline as a buying opportunity.
What happened: The declines amid the broader market recovery have been superficial because investors are too underinvested, She said Strat. Fund Tom Lee in an interview with CNBC. This is evident from measures of investor leverage, he said, adding that marginal debt was still below July 2023 levels and cash on the sidelines reached a record $6.1 trillion last week.
“So these declines are opportunities to add,” Lee said. “I traveled around Latin America last week, meeting with a lot of pension funds, and we have a feeling that these investors are waiting for a decline. So as soon as you feel some sort of oscillation, like today [Friday]I think these problems are quickly satisfied with purchases,” he added.
To some extent, the valuations are exaggerated, Lee said.
“Hedge fund positioning that appears extended and AAII tends to reflect bullish sentiment, but does not necessarily reflect actual positioning,” he said.
The other measures don’t necessarily capture what private banks, wealthy individuals and families are doing, and comments from asset managers still suggest a conservative bias, he added.
“We’re really not as exhausted in rankings or sentiment as we were in October 2021,” Lee said.
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Because it is important: THE S&P 500 Index hit a new closing record on Tuesday and the Nasdaq Composite rose to a new high last Friday. The reason for the retreat from these levels is concern about the possibility that the Federal Reserve will start cutting rates by June.
If inflation remains subdued, the central bank may have to reduce rates from multi-year highs sooner rather than later. So, the moot point is the trajectory of inflation.
That said, Morgan Stanley analyst Lisa Shalette sounded a note of caution. Easy financial conditions and enthusiasm for artificial intelligence are driving the surge, despite persistently high rates and negative earnings revisions, she said earlier this week.
He cautioned against investors placing a lot of hope on these items for the future. The injection of liquidity into the financial system from banks, money markets and government stimulus programs that have more than offset the Fed’s tightening may finally run out, and excess savings buffers are close to running out, he said. Shalett also said potential gains from AI could already be priced into stock valuations.
THE SPDR S&P 500 ETF Trust Fund TO SPYan exchange-traded fund that tracks the performance of the S&P 500 index, closed Friday’s session down 0.69% at $509.83according to Benzinga Pro data. The publicly traded index has gained 7.60% year to date and is currently trading at an all-time closing high of $515.18 reached on Tuesday.
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