Top Strategist Tom Lee Expects a 5% Correction For the S&P 500 (CNBC)

The S&P 500 is about to tank 5%, according to JP Morgan's Chief U.S. Equity Strategist Tom Lee. Since 2009, Tom Lee, a perma-secular bull, has been correct on the market's direction (give or take some points on his year end targets). So his short-term bearish call, which has run away from him so far, is a decent sentiment indicator for downside risk, in my opinion. Here are the negative catalysts he sees going forward via his CNBC interviews on March 11 and March 15, 2013 (below for reference). Tom still believes that the S&P will hit 1,580 by year end. It hit a high of 1,563 recently.

Quotes from Tom Lee's CNBC appearance on March 11, 2013 (first two videos)

"I think in the short-term, if the data is weakening - and I think investor expectations haven't really adjusted to that - I think there's chance the market could consolidate short-term."

"The worst case scenario would be that we've got a bigger hit to consumer spending than expected, that there's some adverse developments in Europe, and China sort of doesn't really stabilize. I think that would set us up for a larger correction. But that's not really our expectation."

"If you're really overweight equities now and you've got additional dollars to put to work, I think there's going to be better chances."

"It's actually a contrarian indicator. So what I mean by the signal is cautious is it means that mutual fund investors are actually overweight beta. If you look at Russell 1,000 growth managers, their beta to the market is about 1.1. It's one standard deviation above the average, and it's really the level we've seen in front of the last four corrections."

Quotes from Tom Lee's CNBC appearance on March 15, 2013 (third video)

"In the short-term, I think I'd agree with some of the comments I heard earlier that I think we're expecting economic data to weaken in the next month or so. And that should hopefully lead to a pause or some sort of pullback in equity markets."

"There's going to be a little bit of payback because as you know the inventory accumulation is helping us in Q1. It's going to really be a drag in Q2. And then we have to layer in the idea that we still expect some effect from higher gasoline, higher payroll taxes, higher tax rates, and sequestration. And I think those effects will be felt... we'll probably see it in the payroll numbers in the next couple of months weaken relative to the current trend."

"I think one of the issues is, once you kind of get everyone bullishly positioned, then the economic data starts to become the prevailing force. And if it's weakening, I think that could set us up for a pullback."

"We've been sitting on the sidelines for three weeks, and you know we've been wrong because the market's really been moving up unabated... I think we're really talking maybe 5% (correction), so something below 1,500."

Tom McClellan, who timed last year's end-of-year rally perfectly based on interesting Eurodollar COT statistics, also believes that a correction is imminent. So this is just more confirmation.

Unless inflation spikes here unexpectedly (which doesn't look likely, look at the velocity of money) and/or the dollar plunges, I don't see the market moving much higher from here in the near-term (in my opinion). But the Fed is still printing money and expanding its balance by $85 billion every month to buy securities in its QE-Infinity program. However, even Fed Chairman Ben Bernanke said QE couldn't offset the negative effects of fiscal tightening.

Other related recent posts flashing a warning sign for the market:

Chart: The VIX's VIX Is Diverging With The VIX (3/15/2013)
The Dow and Copper's Negative Correlation vs. Market Corrections (Chart) (3/15/2013)
Welcome Back to 2006-2007 Volatility - $VIX, $VXN, $VXV $RVX $SPX $RUT $NDX (3/13/2013)
Recommended posts powered by Google