One of Wall Street's most optimistic equities strategists has predicted that a stock market correction is on the horizon.
Following a 21% increase over a 14-week period, Fundstrat's Tom Lee warned clients on Tuesday that a decline is imminent.
"I think we [the S&P 500] might be approaching something close to 5,000, maybe a little higher, and then I think a drawdown follows," said Lee.
The most recent 13 out of 14 weeks of S&P 500 gains were one of seven occurrences that Lee discovered when researching market history, all of which occurred after 1927. Within the subsequent two weeks, the stock market reached its top in four out of the seven cases.
Lee further said that the impending market correction is reasonable given that it will follow the same pattern of stock market trading as the bear market trough in October 2022.
Starting in October 2022, the stock market surged 20% for 16 weeks before a 9% correction, a 21% rally over 19 weeks, and finally, an 11% drop. According to Lee, a pullback is not surprising considering the recent 21% gain of the S&P 500. Based on present levels, the S&P 500 would go to around 4,600, according to Lee's prediction of a 7% decrease.
Regarding the underlying cause of such a drop, Lee stated that investors could be worried about when the Federal Reserve would decrease interest rates. This might happen if the bank waits too long and the economy starts to falter.
In spite of the gloomy forecast for the near future, Lee maintained his strong stance on the stock market in 2024, predicting that the S&P 500 might reach 5,200–5,400.
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