- Tom Lee said in an interview with CNBC’s Scott Wapner on Monday that the stock market is “dangerous,” pointing to uncertainty heading into the election and a potential violent rotation out of tech stocks and into cyclicals.
- But long-term investors need not worry and should look to take advantage of a huge buying opportunity in stocks, Lee said.
- Lee added that he expects the stock market to put in its bottom before the November 3 election.
- Lee said there are four reasons investors should buy the recent sell-off in stocks.
- Visit the Business Insider homepage for more stories.
Amid a three-week sell-off led by technology stocks, the stock market is in a “dangerous” place right now, Fundstrat’s Tom Lee said in an interview with CNBC’s Scott Wapner on Monday.
But besides looking to take advantage of a huge buying opportunity, long-term investors shouldn’t do anything, Lee said.
The danger in stocks right now is twofold, Lee said. First, political uncertainty heading into the November election will cause volatile trading, and second, an economic recovery would likely prompt investors to sell technology stocks in favor of cyclical stocks.
The only problem is that there’s a lot of supply of technology stocks and little supply of cyclical stocks, which could lead to a violent rotation rally if Lee’s expectations come to fruition.
Growth and technology stocks have led the stock market in recent weeks, months, and years; they now make up 76% of the market cap.
"You have a 3-to-1 ratio where if people do have to rotate out, there's a lot of large-cap they have to get out of and not a lot of epicenter to get into," Lee said. "So I think that's what makes it dangerous."
Still, Lee said he thinks the stock market will put in its lows before the November 3 election and offered four reasons investors should take advantage of the recent market sell-off and buy the dip:
1. "The VIX is actually not making a new high."
2. "We've got $4.4 trillion in cash on the sidelines."
3. "We know that the PMIs are telling us a pretty vigorous recovery is underway."
4. "The Fed is accommodative."
Lee remains bullish on stocks and is sticking to his 3,525 S&P 500 year-end price target, but that's not to say he doesn't see more downside from current levels.
Lee said the market could test its "magnetic" 200-day moving average, which would represent 6% downside from Friday's close.
He said that while the market is as oversold today as it was in late March, he would be looking at the recent sell-off in stocks as an opportunity, "not as something to try to sell to avoid 4% downside."