One measure suggests the stock market has bottomed based on roadmaps from 2008 and 2020
Reuters
- A buy signal flashed on Monday, suggesting the stock market has bottomed, said Tom Lee.
- The Fundstrat head of research has been looking at the VIX, which gauges expected stock volatility.
- He says recent movement in the index mirrors patterns from the market recoveries of 2008 and 2020.
A "buy" indicator flashed on Monday, suggesting to Fundstrat head of research Tom Lee that the stock market bottom is in.
It would be a welcome respite after a tumultuous couple of weeks that saw the S&P 500 briefly fall into bear-market territory before rallying 10% in a single session just days later. The index is still 12% below record highs.
Lee is focused on the Cboe Volatility Index — or VIX, known as the stock market's fear gauge — which he says is tracking the same road maps as recoveries in 2008 and 2020.
According to Lee, when the VIX moves above 60 and then quickly falls below 31, it signals that the market has reached its bottom and is set to rally. It's something that just happened, and also occurred in 2008 (Global Financial Crisis) and 2020 (COVID).
Fundstrat
The VIX closed at 30.89 on Monday, below the key 31 threshold. It continued its decline on Tuesday to around 29.
"If the VIX has peaked, we've already made our lows, so it makes sense to buy stocks," Lee said, who expects the S&P 500 to rise to 5,500 resistance before entering "a new leg higher."
One reason Lee is confident that volatility on Wall Street has peaked is because of comments from Treasury Secretary Scott Bessent, who is no stranger to the VIX given his experience as a hedge fund manager.
In an interview with Bloomberg on Monday, Bessent said market uncertainty has likely peaked.
"If we measure uncertainty by the VIX, I think that the VIX, I don't want to make market calls, but I think that the VIX spiked and has likely peaked," Bessent said.
On top of that, Trump's willingness to exempt certain consumer electronic goods made in China from tariffs, as well as his comments on Monday that he is looking to help the auto sector adapt to the tariffs, suggests to Lee that there are "more voices in the room" when it comes to rolling back some of Trump's proposed tariffs.
Ultimately, Lee believes investors who have adapted a more tactical investment strategy amid the heightened volatility should transition back to a long-term investment focus.
"Whether this is a V-shaped or W-shaped recovery remains unclear, but either pattern leaves room for significant upside," Lee said, adding that any policy flip from the Trump administration to lessen tariffs would drive further upside.