A small inventory market pullback over the previous week represents one other “purchase the dip” alternative for buyers, in response to Fundstrat.
Fundstrat highlighted a reawakening IPO market, a rising pile of sidelined money, and an increasing financial system as explanation why buyers should purchase.
“This seems more and more like an financial system slipping into an enlargement, not sliding right into a recession.”
The two% decline within the inventory market over the previous week represents yet one more “purchase the dip” alternative for buyers, in response to Fundstrat’s Tom Lee.
He highlighted that whereas many buyers query whether or not a prime was made following the S&P 500’s 14% year-to-date rally, they need to as a substitute be shopping for shares.
“Since March 2023, the ‘purchase the dip’ regime has been in place and is predicated upon measuring how resilient equities are within the face of a sell-off,” Lee defined in a Friday observe. “Shares have recovered losses fairly rapidly. And we typically view this pull again as a consolidation and equities will quickly get well.”
His confidence stems from three key components, together with a reawakening IPO market following the profitable debut of Cava, a rising pile of sidelined money totaling greater than $5 trillion, and an financial system that’s nonetheless in enlargement mode.
The IPO market
“The IPO market is coming again to life. There have been a number of excessive profile IPOs this previous week together with Cava. IPOs are a approach for institutional buyers to achieve risk-on publicity, as they allocate and take part in new issuance. For June month-to-date, IPO issuance totaled $30 billion, which exceeds the $19 billion issued in all of June 2022.”
“Money on the sidelines stays mountainous at $5.5 trillion. And as information from Pantheon Macro reveals, the highest 1% of households raised their money balances by 52% since 2019. Wow. And the eightieth to 99th percentile raised money balances by 32%. That is staggering and reveals how the general public stays deeply skeptical.”
A Rising Economic system
Lee highlighted that the financial system nonetheless seems poised for development regardless of fears of a possible recession, evidenced by a latest shock soar in housing begins and an improved outlook for company earnings.
“2Q23 earnings season is arising and extra strategists are noting that this seems like EPS development ex-Power may flip constructive year-over-year. This is able to be a constructive improvement for risk-on,” he mentioned.
Lee expects upcoming information to bolster his view that the financial system stays in enlargement mode, with the June employment report exhibiting continued energy whereas inflation studies may present a continued slowdown.
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