Renowned Wall Street strategist Tom Lee has issued a softer outlook for the Nasdaq this year, suggesting investors "should be cautious for the next eight weeks".
Speaking to CNBC's Squawk Box program overnight, Lee said that the index could face a sharp pullback in the coming months.
As the tech-heavy Nasdaq has surged through 2024, investors are now wondering if a market correction is on the horizon and whether it could present a buying opportunity.
Let's see what the situation is.
Tom Lee's Nasdaq forecast
The Nasdaq Composite Index (NASDAQ: .IXIC) is an index that includes stocks listed on the Nasdaq Stock Exchange in the US.
Investors can gain exposure to it through the BetaShares NASDAQ 100 ETF (ASX: NDQ).
Tom Lee, managing partner at Fundstrat Global Advisors, believes the US market could experience a sharp pullback over the next few months.
Lee is known for making bold – and largely correct – stock market predictions.
Speaking to CNBC, Lee cited several factors, such as US economic data, the US Federal Reserve's potential interest rate cuts, and the looming US election, as potential triggers for a downturn.
That, and the fact markets have been roaring in 2024. Per CNBC:
Market's been up seven of the eight months this year. So we know it's an incredibly strong market. But we also have the September cuts, and we have the election: things that'll get people nervous.
There are probably more growth worries in people's minds these days, so the jobs reports and claims seem to have more market reaction. I think that's going to be the case in September, as well.
Lee also highlighted that markets often experience seasonal volatility around this time of the year anyway.
The election, in particular, has weighed in, with weakness in the oil price and the Chinese economy talking points amongst the crowd on Wall Street.
So people think that oil should be higher for many reasons, but oil's been weak, so I'd say that's another factor.
China is becoming a bit mysterious here, there is even risk for negative GDP there.
These external factors could exacerbate a correction in the Nasdaq. As to how far the correction may go? A 7–10% drawdown isn't out of the question, Lee says. Plus, we should expect more volatility.
But, as Lee noted in a separate post on the platform 'X' regarding volatility: "If a stock market rises 18%, then falls 2% and that rattles you, maybe you're not geared for stocks."
What does this mean for investors?
While Lee's forecast might sound alarming, for those with a long-term attitude, his overall sentiment remains bullish.
He views the predicted pullback as a prime opportunity to load up on shares.
I think in the next eight weeks, people will get a chance to buy, it's good to be cautious but be ready to buy that dip.
Furthermore, Lee said he would do exactly that if the market overshoots a negative reaction to the US labour market report due later this month.
If it's [the jobs report] too strong and investors worry and so the stock market's down Friday, I'd be buying that dip.
Despite the possibility of a short-term decline, the long-term outlook of the markets – including the Nasdaq and others – remains promising.
In fact, Lee himself detailed the bullish case for the S&P 500 Index (SP: .INX), another US large-cap stock index, to increase by 20% per year until 2030.
Foolish takeout
Lee's advice is clear: Investors should prepare for some turbulence but remain ready to act if prices fall significantly.
But markets move in cycles, and that's why a long-term view is always necessary.
