- US stocks could fall 10% in October after a solid September performance, Fundstrat’s Tom Lee said.
- Despite being a long-time bull, Lee says worries about Fed policy and the debt ceiling could shake stocks in the fall.
- The S&P 500 has notched up seven straight months of gains, unnerving some investors.
- See more stories on Insider’s business page.
Long-term market bull Tom Lee has said stocks could drop 10% in October as investors fret over Federal Reserve policy and Congressional debates over the US debt ceiling.
Lee, the cofounder and head of research at Fundstrat Global Advisors, told CNBC on Friday that he expects September to be a stellar month for US stocks despite some investors’ worries about what is often seen as a troublesome period for markets.
Yet he said that October could see a correction – a 10% drop in stocks from the most recent peak – that many investors have long suspected is coming.
“We get that much closer to tapering,” Lee told CNBC’s “Trading Nation”. “That’s really when the debt ceiling rhetoric comes back, and if there are going to be concerns about the debt ceiling, the bond market could panic. And as you know, if the bond market panics, the stock market panics.”
Lee, who ran JPMorgan’s equity strategy from 2007 to 2014, is widely known as a market bull – someone who thinks stocks are going to go up. He said he thinks the S&P 500 could rise by 100 points in September, taking it to around 4,650.
The strategist said a slowdown in hiring in the US and the spread of the Delta coronavirus variant should mean the Fed will keep monetary policy loose for longer than previously expected.
He said many investors thought there could be a correction in August and so took money off the table, meaning they have cash to play with in September.
Yet he said: “The window where we think you could start to have potentially a 10% pullback is October.”
US stocks have been on a tear in 2021, supported by a rapid economic rebound and vast amounts of government and central bank stimulus. The S&P 500 notched its seventh straight month of gains in August, the longest winning streak since 2017, and closed at 4,535.4 on Friday.