Market Analysis

Tom Lee, managing partner and head of research at Fundstrat Global Advisors, anticipates a potential decline of 7% to 10% in stock prices over the next two months, which could present a "buy-the-dip" opportunity for investors.

Lee advised caution for the upcoming eight weeks, highlighting the strength of the market this year, with gains in seven of the first eight months. He noted that upcoming events such as the September interest rate decision and the election could contribute to market nervousness, as discussed in an interview with CNBC's "Squawk Box."

In light of rising concerns about economic growth, key employment indicators like jobs reports and jobless claims are garnering increased attention. Lee expects this focus to persist into September.

The August nonfarm payrolls report, scheduled for release on Friday at 8:30 a.m. ET, is anticipated to show robust job creation. However, Lee hopes it won’t be excessively strong to avoid sparking fears of the Federal Reserve reversing its policy easing stance.

Lee predicts a positive rebound in August’s jobs report but prefers it not be too robust, as an overly strong report might raise concerns about the Fed potentially halting its anticipated September rate cut.

Recent inflation data has supported the expectation of three 25-basis-point rate cuts by the Fed this year, according to the CME FedWatch Tool. Yet, if job data indicates significant labor market cooling, a more substantial 50-basis-point cut remains a possibility.

Having accurately forecasted last year's stock market rally, Lee now adopts a more cautious approach as the market faces potentially turbulent conditions. Nonetheless, he views this downturn as a buying opportunity.

Lee stated, “I believe there will be a chance to buy in the next eight weeks. It's wise to be cautious but prepared to buy the dip when it comes.”

He considers minor 1-2% pullbacks as routine fluctuations, but expects a 5% decline to be quite probable in the near future. Lee suggests that if the jobs report is overly strong and the market falls on Friday, it would be a good time to buy the dip. Conversely, if the report is favorable and the market rises, he anticipates further gains.

Regarding election-related trading, Lee observed that despite existing geopolitical risks, the recent weakness in oil prices might indicate a market bet on a Trump re-election.

Paraphrasing text from "Reuters" all rights reserved by the original author.