Tom Lee Says a VIX Signal Points to a Stock Market Bottom
Tom Lee says Monday’s 2.3% S&P 500 rally backs his view that final week’s selloff was the underside. The Fundstrat managing associate cited a reversal in Wall Street’s volatility indicators.
The name issues for holders of AI and megacap tech shares, who absorbed most of final week’s harm. However, Kevin Gordon, head of macro analysis at Schwab, warns that one sturdy day doesn’t show a backside.
Why Does Tom Lee Read the VIX as a Bottom Signal?
Lee pointed to the Cboe Volatility Index (VIX), Wall Street’s worry gauge. Its time period construction, which compares four-month and one-month readings, inverted final week and normalized on Monday.
Lee stated that normalization often marks a backside. He additionally learn the rally by way of weekend dangerous information as a wholesome signal.
Nvidia (NVDA) fell about 4% after its board opened a probe into CEO Jensen Huang’s admitted affair. The S&P 500 itself closed at 7,549.94 for its finest day since April.
Lee had argued for buying the AI dip final week. On CNBC, he summed up his view.
“I believe markets are a lot safer than individuals suppose.”
Tom Lee, managing associate and head of analysis at Fundstrat, talking on CNBC
Does Breadth Back the Rebound?
Gordon argues the higher sign sits beneath the headline index. The equal-weighted S&P 500, which provides each firm the identical affect, saved beating the market-cap-weighted model by way of final week’s selloff.
Nearly 60% of index members additionally held above their 200-day shifting averages by Friday, he stated. He added that the stress centered on leveraged tech bets that predated the midterm elections.
Meanwhile, Chris Hyzy, chief funding officer at Bank of America Private Bank, discovered assist in financials. He stated their energy factors to coming deal exercise and intact lending margins.
Gordon stated megacap tech sways the index a lot that a cap-weighted rally says little in regards to the typical inventory. Inflation information due this week may check the rebound, and a renewed VIX inversion would undercut Lee’s learn.
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