One of Wall Street’s more upbeat commentators, Tom Lee, claims that Monday’s stock market decline was an overreaction and cites important events this week that could stabilize indices.
The selling that sent the S&P 500 SPX to its worst daily performance in almost three months, according to Lee, head of research at Fundstrat Global Advisors, was caused by growing challenges since the tariff war began. He claimed that the broad-based liquidation was especially bad for tech equities.
S&P 500 futures (ES00) increased 0.4% in early trading on Tuesday, recouping a little portion of Monday’s losses.
Lee claimed that investor concerns were heightened by the higher recession probability predicted by Goldman Sachs and Moody’s experts as well as by Canada’s incoming prime minister, Mark Carney, and his strong trade policies.
However, Lee asserts that there are chances for market stabilization.
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One reason is that investors are pricing in the size of trade disruptions, comparing their effects to those of Brexit, in a manner similar to the response to Fed Chair Jerome Powell’s 2022 statement emphasizing the need for economic suffering to reduce inflation.
A lot of people will be watching President Donald Trump’s statements before the Business Roundtable, which are scheduled for Tuesday at 5 p.m. Eastern. “Observers will be attentive to whether CEOs can influence White House tariff policies amid growing backlash, including opposition from Senator Rand Paul,” Lee states.
The consumer and producer pricing indices, the job openings report, and the government financing deadline on Friday all contain important data.
According to the CME’s FedWatch tool, the likelihood of a rate decrease in May increased to 49%, as Lee noted, suggesting the Fed’s tacit support.
He pointed out that credit-default swaps had not altered much, especially with regard to Tesla (TSLA), which dropped 15%. On Monday night, Trump promised to help the Elon Musk-led enterprise by purchasing a Tesla car.
Fundstrat’s head of technical strategy, Mark Newton, stated that although investors have not given up, there are indications that a market low may be on the horizon.
“In general, investors looking for signs of capitulation have found our current selloff to be significantly more contained and orderly than they had hoped. Despite the absence of DeMark exhaustion, [the S&P 500] should be approaching lows based on Elliott-wave structure and cycles, but that may still be ahead of us this week. If the market as a whole has fared better in recent weeks than the tech-dominated big indices, that’s a good start,” he said.
