Fundstrat's Tom Lee gives 7 reasons why investors should buy the stock market's recent dip, even as bond yields surge

Tom Lee
  • Fundstrat's Tom Lee thinks investors should buy the recent dip in the stock market, according to a Friday note.
  • Lee said the 10% decline in the Nasdaq 100 likely represented a "local bottom" and that stocks have "multiple positive supports that will likely dominate in 2021," according to the note.
  • Here are the 7 reasons why investors should "buy the dip" in stocks, according to Lee.
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US stocks took a beating over the past three weeks after rising interest rates and concerns about inflation sparked a mass exodus out of high-growth technology companies and into cyclical stocks that are heavily exposed to a reopening economy.

The Nasdaq 100 fell as much as 10% since its mid-February peak, while the S&P 500 fell as much as 6%. The move lower was even more pronounced in the ARK Disruptive Innovation ETF managed by Cathie Wood, which fell as much as 33% from its recent peak.

But Fundstrat's Tom Lee thinks investors should take advantage of the recent stock market decline and "buy the dip," according to a Friday note. 

"Equities have multiple positive supports and this constructive backdrop will likely dominate in 2021," Lee said.

And in a follow-up note, Lee observed that technology stocks likely made a "local bottom" and that the fundamentals of tech firms are good. 

"We prefer epicenter stocks, and energy more. But I think technology stocks are due for a monster rally," Lee said.

Here are the seven reasons why investors should buy stocks amid the recent decline, according to Fundstrat.

1. "Washington is moving forward with passing a large fiscal relief package, and Treasury Sec. Yellen has made a forceful case for it."

2. "Fed has been vocal in policy stance (last week's minutes affirmed) and Fed is patient."

3. "US economy is re-opening and economic momentum is strong -- so strong, JPMorgan's Chief Economist, Bruce Kasman, says US V-shape recovery will soon surpass China.  Wow."

4. "There remains a substantial perception gap between policymakers/media and COVID-19 realized data, and a closing of this gap is positive for risk assets."

5. "Millennials are steadily allocating assets toward equities, and the surge in retail brokerage account openings is evidence of this."

6. "Bonds are becoming less attractive total return vehicles as inflationary expectation are increasing, boosting the attractiveness of equities."

7. "VIX should ultimately steadily decline in 2021, and as we pointed out in our 2021 Outlook, periods of declining volatility historically lead to big equity gains, particularly for cyclicals."

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