A small stock market pullback over the past week represents another “buy the dip” opportunity for investors, according to Fundstrat.Fundstrat highlighted a reawakening IPO market, a growing pile of sidelined cash, and an expanding economy as reasons why investors should buy.”This looks increasingly like an economy slipping into an expansion, not sliding into a recession.” Loading Something is loading.
Thanks for signing up!
Access your favorite topics in a personalized feed while you’re on the go.
The 2% decline in the stock market over the past week represents yet another “buy the dip” opportunity for investors, according to Fundstrat’s Tom Lee.
He highlighted that while many investors question whether a top was made following the S&P 500’s 14% year-to-date rally, they should instead be buying stocks.
“Since March 2023, the ‘buy the dip’ regime has been in place and is based upon measuring how resilient equities are in the face of a sell-off,” Lee explained in a Friday note. “Stocks have recovered losses pretty quickly. And we generally view this pull back as a consolidation and equities will soon recover.”
His confidence stems from three key factors, including a reawakening IPO market following the successful debut of Cava, a growing pile of sidelined cash totaling more than $5 trillion, and an economy that is still in expansion mode.
The IPO market”The IPO market is coming back to life. There have been several high profile IPOs this past week including Cava. IPOs are a way for institutional investors to gain risk-on exposure, as they allocate and participate in new issuance. For June month-to-date, IPO issuance totaled $30 billion, which exceeds the $19 billion issued in all of June 2022.”
Sidelined Cash”Cash on the sidelines remains mountainous at $5.5 trillion. And as data from Pantheon Macro shows, the top 1% of households raised their cash balances by 52% since 2019. Wow. And the 80th to 99th percentile raised cash balances by 32%. This is staggering and shows how the public remains deeply skeptical.”
A Growing EconomyLee highlighted that the economy still looks poised for growth despite fears of a potential recession, evidenced by a recent surprise jump in housing starts and an improved outlook for corporate earnings.
“2Q23 earnings season is coming up and more strategists are noting that this looks like EPS growth ex-Energy could turn positive year-over-year. This would be a positive development for risk-on,” he said.
Lee expects upcoming data to bolster his view that the economy remains in expansion mode, with the June employment report showing continued strength while inflation reports could show a continued slowdown.