The stock market is ‘dangerous’ now — but 4 reasons should drive investors to take advantage of a huge buying opportunity, Fundstrat’s Tom Lee says

Tom Lee
  • “I think the market is dangerous now,” Tom Lee said in an interview with CNBC’s Scott Wapner on Monday, pointing to the uncertainty in Washington, D.C., heading into the upcoming November election and a potential violent rotation out of tech stocks and into cyclicals.
  • But long-term investors need not worry, and should instead look to take advantage of a huge buying opportunity in stocks, Lee said.
  • Lee added that he expects the stock market to put in its bottom before the November 3 election.
  • Here are four reasons why investor should buy the recent sell-off in stocks.
  • Visit the Business Insider homepage for more stories.

Amid a three-week sell-off led by technology stocks, the stock market is in a “dangerous” place right now, Fundstrat’s Tom Lee said in an interview with CNBC’s Scott Wapner on Monday.

But besides looking to take advantage of a huge buying opportunity, long-term investors shouldn’t do anything, according to Lee.

The danger in stocks right now is two-fold: First, political uncertainty headed into the November election will cause volatile trading, and second, an economic recovery would likely fuel investors to sell technology stocks in favor of cyclical stocks.

The only problem is there’s a lot of supply of technology stocks, and little supply of cyclical stocks, which could lead to a violent rotation rally if Lee’s expectations come to fruition.

Growth and technology stocks have been the leaders of the stock market in recent weeks, months, and years, and they now make up 76% of the market cap. 

“You have a three-to-one ratio where if people do have to rotate out, there’s a lot of large cap they have to get out of and not a lot of epicenter to get into, so I think that’s what makes it dangerous,” Lee said.

Still, Lee said he believes that ultimately the stock market will put in its lows prior to the November 3 election, and offered four reasons why investors should take advantage of the recent market sell-off and buy the dip.

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1. “The VIX is actually not making a new high.”

2. “We’ve got $4.4 trillion in cash on the sidelines.”

3. “We know that the PMIs are telling us a pretty vigorous recovery is underway.”

4. “The Fed is accommodative.”

While Lee remains bullish on stocks and is sticking to his 3,525 S&P 500 year-end price target, that’s not to say he doesn’t see more downside from current levels.

Lee said that the market could test its “magnetic” 200-day moving average, which would represent 6% downside from Friday’s close.

Noting that the market is as oversold today as it was in late March, Lee said he would be looking at the recent sell-off in stocks as an opportunity, “not as something to try to sell to avoid 4% downside.”

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