The market meltdown that occurred on Tuesday may have been an overreaction, according to experts. Many bargain hunters are taking advantage of the situation and looking for opportunities in the market. Chris Weston, head of research at Pepperstone, explains that the market was caught off guard and had limited hedges in place, resulting in a significant sell-off. However, he notes that sell-offs like this often lack follow-through, meaning that they might not have a long-lasting impact.
One of the Street’s biggest bulls, Fundstrat’s head of research Tom Lee, also believes that the market overreacted. He predicts that this pullback will soon be bought and encourages investors to “buy the dip.” Lee has a track record of accurate predictions, having successfully predicted the S&P 500’s finish at 4,750 in 2023. He has set a target of 5,200 for this year, which he believes is too conservative.
Lee provides several reasons why stocks have further room to rise. Firstly, he points out that the sell-off did not occur on the back of good news, which is often a sign of a near-term peak. Secondly, he believes there is still a significant amount of “dry powder” on the sidelines waiting to be deployed into the market. He emphasizes that buying power needs to be exhausted before a near-term top can be reached.
Furthermore, Lee mentions that sentiment is still skeptical, with many skeptics of inflation, the economy, and the stock market voicing their opinions. This skepticism indicates that a near-term top is unlikely. He advises investors to stay focused on small-cap stocks, particularly through the iShares Russell 2000 ETF (IWM). The Russell index experienced significant losses during Tuesday’s sell-off but is expected to rebound as the market stabilizes.
In terms of market performance, stocks have opened higher following Tuesday’s massive surge in Treasury yields. Gold continues to weaken, and the dollar has strengthened against the yen. Despite the recent market turmoil, the S&P 500 and Nasdaq Composite have shown positive gains over the past month and year.
In other news, Uber’s stock is up after the company announced its first share buyback program. However, Uber and Lyft drivers are planning strikes on Valentine’s Day. Lyft’s stock also saw a surge after beating expectations, although it later corrected a previous earnings typo. Airbnb’s stock soared and then fell after strong results and guidance. Amazon founder Jeff Bezos sold $2 billion worth of shares, while Nvidia closed with a market cap higher than Amazon’s for the first time since 2002.
Looking ahead, experts warn that the roughest patch of the year may still be ahead, as indicated by a chart from Finom Group’s chief market strategist. However, there is optimism that the market will rebound and continue its rally.
Overall, while the market meltdown on Tuesday may have caused panic among some investors, experts believe it was an overreaction. They emphasize that there are still plenty of reasons why the rally can continue and encourage investors to remain optimistic.
