According to hedge fund expert Tom Lee, the current stock market is trading at a higher value than it should be and might experience an unexpected downturn.
New interview with CNBC
During an interview with CNBC, the managing partner of Fundstrat Global Advisors stated that the stock market is displaying a negative indication after rising almost 20% in just four months.
Although Lee acknowledges the possibility of a market decline, he thinks that it doesn’t imply the end of the long-term upward trend.
It seems like the market is currently overbought, as it is 13% above the 200-day moving average. Historically, this indicates a strong market, but it also means that it can be susceptible to negative news.
While he said that he understands the perspective that a correction may be on the horizon, he believes that there are too many people who are prematurely declaring this to be the peak. Therefore, he said that any potential downturn may not be significant and could be short-lived.
According to Lee, corrections in the market may occur as investors shift their investments to other stocks that have yet to make significant gains this year.
Lee believes that taking profits is a healthy part of investing, especially for those who have been involved with tech and FAANG (Facebook, Amazon, Apple, Netflix, and Google) stocks that have had impressive returns so far this year. However, taking profits does not necessarily mean exiting the markets.
Next week, if the Fed surprises investors with a dovish pause, they may start looking for stocks that rise on easing financial conditions, which could lead to a shift towards industrials and financials, while still staying in the tech sector.
Therefore, while profit-taking may occur, it does not necessarily mean that the market will decrease.
Stay tuned for more news and make sure to check out the markets as well.
