JPM’s former permabull, Tom Lee, needs no introduction: any time he appears on CNBC, his advice was simple: buy it all. And while he may have parted ways with JPM after moving to his own firm, FundStat, his investing psychology has remained the same: put your faith in central banks and BTFD, or just BTF if there is no D.
Which is why we were surprised to read that while Lee remains generally bullish on central planning, and its most direct manifestation, new all time highs, he writes in his latest commentary that he is “scared about the month of August.”
One look at VIX which recently dropped to a multi-year low, and is now trading at levels where it was last August before it exploded to 40, may explain the reason why.
This is what he said:
For whatever reason (irrational and likely “recency bias”), we are scared about the month of August (4 of 6 most recent Augusts have been big down months) and have noted that in our recent commentary. The overall backdrop for equities, in our view, remains overwhelmingly positive, given the:
- easing of credit conditions (HY rally, especially);
- solid 2Q16 results season affirming our belief global growth is improving;
- skeptical/negative sentiment remains a positive contrarian factor and
- all-time highs represent a decisive breakout for stocks.
That said, a few recent developments suggest August is likely to be a down month. We are not changing our views and we remain buyers of weakness—however, for our tactically-minded clients, it may make sense to fade strength and be prepared to add to weakness in August:
He followed up on Twitter.
Maybe relying too much on “decency bias” but August scares me… Not sure how he gets 6%..DON’T agree with overshoot https://t.co/B55Vqz0HED
— Thomas Lee (@fundstrat) July 21, 2016
Does this mean the path to even recorder S&P 500 highs is now clear? Well, if the recent forecasts of upcoming corrections are any indication, the answer is a resounding yes. Recall that just two weeks ago, Goldman’s David Kostin predicted that “we continue to expect the market will experience a pullback of 5%-10% during the next few months before ending the year at 2100. Strategically, we expect a continuation of the range-bound market that has challenged investors for nearly two years. “
As has traditionally been the case, anyone who followed Goldman’s advice has been promptly margined out.
The only possible confusion here, and the reason why it is premature to give the all clear on an S&P 2,500, is that 10 days ago Dennis Gartman capitulated on his short position saying “”We Have Had Quite Enough; We Want Out Now.” For best returns, it may be prudent to wait until Gartman goes short again before going “all in” stocks.
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