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Strategist: If This Is a 'Growth Scare' and Not a Recession, Now's the Time to Buy Stocks

Strategist: If This Is a 'Growth Scare' and Not a Recession, Now's the Time to Buy Stocks
(Dollar Photo Club)

Thursday, 14 January 2016 05:19 AM

The carnage in U.S. equities is increasingly likely to give way to a V-shaped recovery, predicts Fundstrat Managing Partner Thomas Lee.

Investors, he believes, have been on a "buyers strike" in early 2016, waiting for data to provide more visibility on the health of the economy (or the lack thereof).

A seemingly bearish technical factor is a key element of the strategist's optimism on equities: More than four of five stocks on the New York Stock Exchange are trading below their 200-day moving average. That's both a testament to how few stocks were holding the market aloft prior to the downdraft that began in late December, and according to Lee, a sign that the selling has gone on long enough.

If this episode is just a "growth scare" rather than a precursor to a recession, then history suggests it's time to buy, based on Lee's analysis.

Since 1994, the share of NYSE-trading stocks trading below their 200-day moving average has sunk to 17 percent or lower on 15 occasions. In all instances which did not occur during bear markets, the S&P 500 was up over the next three months (by an average of 14 percent).

"In other words, things have been so bad, that a lot of bad news is baked in," as Lee writes, calling this 17 percent level a "pivot point." (Of course, the key here is whether or not the downwards move in equities becomes so pronounced as to plunge them into a bear market.)

So far the shape of the U.S. Treasury yield curve does not presage a recession around the corner, the strategist suggests.

Lee has been among the most consistently bullish strategists on Wall Street. For 2016, he's sticking with a call he made in 2015: that the S&P 500 will end the year around 2,325.


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The carnage in U.S. equities is increasingly likely to give way to a V-shaped recovery, predicts Fundstrat Managing Partner Thomas Lee.Investors, he believes, have been on a buyers strike in early 2016, waiting for data to provide more visibility on the health of the...
invest, stocks, growth scare, buy
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2016-19-14
Thursday, 14 January 2016 05:19 AM
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