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Fundstrat: This is how you recognize peaks on the stock market

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Fundstrat: This is how you recognize peaks on the stock market

Fundstrat’s Tom Lee says the recent sell-off is nothing to worry about. Cindy Ord/Getty Images

Fundstrat believes it is unlikely that the stock market has peaked following the stronger-than-expected CPI report in January.

There are too many positive factors that suggest this is another buy-the-dip decline, the financial institution writes.

That’s why investors really need to worry that the stock market has peaked, says Fundstrat.

The stock market fell sharply by up to 2 percent on Tuesday after the US Consumer Price Index (CPI) showed higher-than-expected inflation for January. But the selloff likely represents another buy-the-dip moment for investors. And a near-term top in the stock market has not yet occurred, according to an assessment by Fundstrat’s Tom Lee. By its own definition, Fundstrat is an independent financial research agency that offers its clients independent and strategic market insights.

Lee said the “sell-off,” in which many investors sell their securities at once, is normal profit-taking. Long-term investors shouldn’t worry. That’s because the sell-off was triggered by bad data that calls into question the bullish 2024 narrative for the stock market that the Federal Reserve will soon cut interest rates.

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“We are looking for a peak.â€

It’s completely normal for stocks to slide when bad news hits. What’s most disturbing to Lee is when the opposite is true. Lee said the stock market will peak when it declines on good economic news.

“As the saying goes, if we “sell on good news,†we will reach our peak – we are looking for a top, but this sell-off seems too consensual.†œ said Lee.

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At the moment, investors are reacting too nervously to any sign of bad economic news. This usually leads to a rapid price loss. Ironically, this gives Lee confidence that the stock market has not yet peaked.

“The mood turns negative too quickly. Skeptics about inflation, the economy and the stock market have spoken out loudly today. This is what constitutes a short-term high now. If there is a short-term top, we would expect investors to insist that it is a buyable bottom,” explains Lee.

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Over time, more money could flow into the stock market

The assumption is that when everyone at the top is bullish, no one will buy, and soon net sellers will outnumber net buyers. However, because there are so many skeptics of the current stock market rally, as Lee pointed out, there are still many people who can be convinced of the market’s strength.

Another reason Lee believes the stock market can still rise is too much cash on the sidelines. A record six trillion US dollars (that’s the equivalent of around 5.57 trillion euros) are stored in money market funds. In addition, FINRA margin debt is well below its peak. They usually rise to a new record level when the market reaches its peak.

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All in all, this suggests that there is a lot of money on the sidelines that could flow into the stock market over time, especially if interest rates fall. “There is just too much dry powder on the sidelines. Therefore, we believe that this dip in the price will be bought,†emphasizes Lee.

The text was translated from English by Muriel Dittmar. You can find the original here.

Disclaimer: Stocks and other investments generally involve risk. A total loss of the capital invested cannot be ruled out. The articles, data and forecasts published are not a solicitation to buy or sell securities or rights. They also do not replace professional advice.

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