"The Wall Street Whiz" Bullish on US Stocks: Buying Opportunity on Dips

Tom Lee, research director at Fundstrat, said that market pullbacks are good buying opportunities for investors in US stocks as the market is showing signs indicating more room for upside.

The extremely optimistic analyst had previously predicted that the S&P 500 index could nearly triple by the end of this decade, believing that the current tech-driven stock market decline is actually a buying opportunity.

Despite the recent heavy losses in the US stock market - with the Nasdaq 100 index falling nearly 5% in just two days, mainly due to disappointing earnings and volatility in the chip industry - Lee still holds this view.

Lee believes that this sell-off may be driven by multiple factors, including uncertainty surrounding the US presidential election, ongoing geopolitical tensions, and persistent concerns about economic recession.

The company's chief strategist, Mark Newton, stated that there are signs that the sell-off will eventually be limited.

Newton said, "Overall, it's hard for me to view last Thursday's price action as a 'trend change' or 'breaking any trends,' the uptrend remains intact," and pointed out a technical support level for the S&P 500 index at 5390 points. "I would bet that tech stocks are also bottoming out, and I'm unlikely to get too bearish after this pullback."

Lee also outlined four reasons to explain why the market may have just experienced a "normal pullback":

There are many upcoming catalysts in the US stock market

The Fed is expected to provide more guidance on rate cuts in the weeks following the policy meeting. If Fed officials hint at an upcoming rate cut, this could shift the market towards a more positive direction.

Meanwhile, July's inflation data will be released on August 11. Cooling inflation could boost market confidence in rate cuts, which could lift the stock market.

Lee added, "This could dispel concerns about 'Fed mistakes'."

The market is quite optimistic about the interest rate path later this year. According to the CME Group's FedWatch Tool, investors are convinced that the Fed will start cutting rates in September and could cut by 100 to 125 basis points by the end of the year.

Technical signals indicate limited downside

Newton said there is not much evidence that underperforming market sectors (such as small caps) have peaked. Meanwhile, as traders anticipate Fed rate cuts, US bond yields have been declining over the past few months, which is typically a bullish signal for US stocks.

He said, "Therefore, from a technical perspective, it makes sense to look for buying opportunities," and added that small caps look "very attractive" after their recent decline.

The potential Fed rate cuts will be a turning point for the market

This is because rate cuts are expected to reduce borrowing costs for multiple industries. Certain types of debt, such as adjustable-rate mortgages and auto loans, are based on short-term interest rates - meaning these industries will benefit from rate cuts, Lee added

Small-cap stocks send out bullish signals

The Russell 2000 Index reached a 30-month high in July, a situation that has only occurred nine times in the past 45 years. Li pointed out that each time this situation occurred, the index saw an increase in the following three months.

He added that the recent fluctuations in the index have been very small, with less than a 1% change in 11 out of the past 12 trading days. This has only happened 10 times in the past 45 years, and each time this occurred, the index saw an increase in the following six months.

Fundstrat is currently one of the most optimistic companies on Wall Street. Recently, Li predicted a 40% increase in small-cap stocks, thanks to a series of positive signals sent out by small-cap companies