Veteran investor Tom Lee believes that investors should maintain a bullish outlook on the markets, despite the recent correction in equities and other risk assets. In an interview with CNBC, Lee, who is the head of research at Fundstrat, suggests that the correction in equities, which caused the S&P 500 to drop from above 6,000 to 5,832, presents an opportunity for investors to take long positions rather than remain cautious.
According to Lee, the recent increase in volatility index (VIX) on December 18th, which measures the stock market’s expectation of volatility based on S&P 500 index options, is historically associated with market bottoms. He explains that the market has been experiencing a downward trend, and December 18th appeared to be a capitulatory day due to a 90% decrease in stock prices and a 75% increase in VIX. This rapid rise in VIX has only occurred four times in the past 35 years, and in three out of those four instances, the market recovered all of its losses within a week. Lee suggests that the panic selling on December 18th was a result of people exiting momentum trades as the year came to a close.
Despite the recent correction, Lee remains confident in the fundamental support for stocks and considers the current situation to be a buying opportunity for investors. As of Friday’s close, the S&P 500 traded at 5,930 points.
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