Monday reversal signals ‘lot more gas’ left in U.S. stock market for 2020, says Lee

Monday’s stunning reversal in U.S. benchmark stock indexes from a sharply lower opening to a close near the days highs is the clearest indication to strategist Tom Lee that plenty of gas is left in the tank for the bulls into the end of the year, after early fears that the stage was set for a tumble to start the Christmas holiday week.

“In the face of bad news, and a very horrific open, stocks did not manage to see much further downside selling. Instead, in the face of bad news, stocks closed above their open,” Fundstrat’s Lee wrote in a recent note.

On Monday, the Dow Jones Industrial Average DJIA, -0.34% eked out a 0.1%, gain at 30,216.45, after touching an intraday low of 29,755.53 which marked the largest comeback for the blue-chip index since June 15 when it was down 3%, but closed up 0.62%, according to Dow Jones Market Data. Meanwhile, the S&P 500 index SPX, +0.01% and the Nasdaq Composite Index COMP, +0.61% finished with declines of no more than 0.4% after sharp opening drops.

Lee and analysts at Fundstrat said that the intraday bounce-back for U.S. equities imply that there is more room to run for stocks rather than pointing to a market that is reaching a top.

“The strong reversal yesterday in stocks in the face of “scary news” was not a sign of an equity market topping,” Lee wrote. “So this suggests to me there is a lot more gas still in the tank — stocks can rally strongly into [year-end],” referencing the attached chart.

Source: via Fundstrat

Worries about a mutation in the coronavirus spreading from the U.K led to more than three dozen countries banning flights from Britain and frightened investors early Monday. However U.K. medical experts, said that vaccines currently being rolled out should remain effective against the new strain.

That said, Lee is forecasting a correction for stocks of at least 10% in the first half of next year in the U.S. equity market, even as he forecasts the S&P 500 index to finish the year up 4,300.

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