Fundstrat’s Tom Lee Says 7-10% Correction Ahead in S&P 500 Investing.com

Tom Lee, managing partner and head of research at Fundstrat Global Advisors, said he expects stocks to face a 7% to 10% decline over the next two months, creating a so-called “buy-the- dip” for investors.

“Investors should be cautious over the next eight weeks. “When markets are up seven out of eight months this year, we know it’s an incredibly strong market, but we’ve also got the (interest rate) cut in September and we’ve got elections — things that will make people nervous,” Lee told CNBC .Squawk Box”.

Lee noted that with growing concerns about economic growth, key employment data such as jobs reports and jobless claims are drawing more attention from markets. He expects that trend to continue in September.

This week’s non-farm payrolls report for August is expected to show a solid recovery in job creation, although Lee hopes it won’t be too strong, as that could spark concerns that the Fed could reverses its position on policy relaxation.

“I think this August jobs report will show a good rebound. Let’s hope it’s not too strong because people will worry that the Fed could back off on a rate cut in September.”

The August jobs report, due at 8:30 a.m. ET on Friday, is expected to provide more clarity on whether the Federal Reserve will follow through with a much-discussed rate cut this month.

Recent inflation data has supported expectations that the Fed will cut rates three times this year by 25 basis points, according to CME’s FedWatch tool. However, if the jobs data indicates a significant cooling in the labor market, a more aggressive cut of 50 basis points could still be possible.

Known for correctly predicting the stock market rally last year, Lee has taken a more cautious stance now that the market is entering its most difficult month yet. However, he believes such a decline will provide investors with a buying opportunity.

“I think in the next eight weeks, people will have a chance to buy,” Lee said. “So I think it’s good to be cautious, but just (be) ready to buy that bathroom.”

When asked if any potential market turbulence presents an opportunity to “buy the dip,” the investor described the 1-2% pullbacks as “almost like daily noise.” However, he believes a 5% drop is “very likely” in the coming weeks.

“If (the job report) is too strong and investors are worried and the stock market is down on Friday, I would buy that dip. But there’s a chance we’ll get a good job report and the market will be up.”

As for election-related trades, Lee pointed out that the weakness in oil prices, despite existing geopolitical risks, suggests the market could increasingly bet on a Trump re-election.