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Tom Lee is calling for correction in the Wall Street

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Brendan McDermid/Reuters

One of Wall Street’s most optimistic equity strategists, Tom Lee from Fundstrat, has raised concerns about an impending stock market correction. Lee recently advised clients that, following a remarkable 21% surge in the S&P 500 over a span of 14 weeks, a downturn is likely looming in the coming weeks.

Lee’s analysis delved into historical market data, revealing seven occasions since 1927 when the S&P 500 recorded gains in 13 out of 14 weeks, mirroring the recent trend. In four of these instances, the stock market reached its peak within the subsequent two weeks.

Drawing parallels to market patterns observed during the bear market low in October 2022, Lee highlighted that after a 20% surge over 16 weeks, the market experienced a 9% correction, followed by another 21% rally over 19 weeks before a subsequent 11% downturn. Given the recent 21% uptick in the S&P 500, Lee suggested that a drawdown should not be unexpected.

Lee predicted a potential 7% decline, which would translate to the S&P 500 dropping to around 4,600 from current levels. He identified the timing of the Federal Reserve’s interest rate cuts as a potential catalyst for investor concerns, particularly if the central bank delays its actions, leading to economic weakening.

Despite the short-term bearish sentiment, Lee reaffirmed his bullish stance on the stock market for 2024, projecting that the S&P 500 could ultimately climb to a range between 5,200 and 5,400.

“Overall, this remains a positive year, and we are still in a bull market,” Tom Lee reiterated.

Cindy OrdGetty Images

Expanding on Lee’s insights, market analysts believe that factors such as geopolitical tensions, inflation concerns, and the impact of COVID-19 variants could exacerbate market volatility in the near term. Additionally, investors are closely monitoring corporate earnings reports and economic indicators for further clues about the market trajectory.

In response to Lee’s assessment, some investors are reevaluating their portfolios, considering potential defensive strategies to mitigate downside risks. However, others remain optimistic, viewing any market pullback as a buying opportunity to capitalize on future growth prospects.

Looking ahead, market participants are awaiting further developments, recognizing that market corrections are an inherent part of the investment landscape and present opportunities for long-term investors. As the market navigates through potential headwinds, adaptability and prudent risk management will be critical for investors to navigate the evolving market environment successfully.

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