Tom Lee, one of the more optimistic voices on Wall Street, says that the stock-market drop on Monday was an overreaction as he points to key events this week that could stabilize indexes.
Lee, head of research at Fundstrat Global Advisors, said the selling which dragged the S&P 500 SPX to its worst daily performance in nearly three months is due to mounting difficulties since the tariff war started. Broad-based liquidation was particularly severe in tech stocks, he said.
In early trade on Tuesday, S&P 500 futures (ES00) rose 0.4%, recovering a fraction of Monday's losses.
Lee said the increased recession probabilities coming from Goldman Sachs and Moody's economists, as well as the tough trade stance articulated by Canada's next prime minister, Mark Carney, exacerbated investor fears.
But Lee says there are opportunities for markets to stabilize.
For one, investors are pricing in the magnitude of trade disruptions, likening their impact to that of Brexit, in a way that parallels the reaction to Fed Chair Jerome Powell in 2022 highlighting the necessary economic pain to curb inflation.
President Donald Trump's comments before the Business Roundtable - his remarks are set for 5 p.m. Eastern on Tuesday - also will be closely watched. "Observers will be attentive to whether CEOs can influence White House tariff policies amid growing backlash, including opposition from Senator Rand Paul," says Lee.
There's key data coming in the job openings report, the consumer price index and the producer price index, as well as the Friday deadline for government funding.
Lee pointed out the probability of a May rate cut surged - now at 49%, according to the CME's FedWatch tool - indicating the Fed's implicit support.
On Tesla $(TSLA)$ in particular, which fell 15%, he noted that credit-default swaps were little changed. Trump Monday night pledged to buy a Tesla vehicle in support of the Elon Musk-run company.
Meanwhile, Mark Newton, head of technical strategy at Fundstrat, said investors have not capitulated but there are signs a market low could be approaching.
"Overall, our recent selloff has proven far more orderly and concentrated than desired for investors seeking evidence of capitulation. While that still might be ahead of us this week, [the S&P 500] should be closing in on lows based on Elliott-wave structure and cycles despite the lack of DeMark exhaustion present. If there's any positive thus far, it's that the broader market has held up in better shape in recent weeks than the tech dominated major indices," he said.
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