- An explosive rally in the stock market could transpire over the next two days, according to Fundstrat’s Tom Lee.
- Window dressing on the last day of the month by fund managers favors buying pressure in some of the most popular stocks, Lee said.
- And the start of April on Thursday will likely be marked by inflows into equities as one of the strongest months of the year for the stock market begins.
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The stock market is poised for a massive rally over the next two days as window dressing and strong seasonality begins to kick in, according to a Tuesday note from Fundstrat’s Tom Lee.
The potential “face rip” rally will first be driven by the last trading day of the month on Wednesday, in which fund managers participate in “window dressing,” Lee said. The practice of window dressing occurs when funds sell their losing stocks and buy the winning stocks to improve the image of their quarter-end holdings.
And on Thursday, strong seasonality should kick in as it’s the first trading day of April. Stocks typically see inflows on the first trading day of the month, according to Lee, and systematic funds want to be long stocks in April because it is on average one of the strongest months of the year for markets.
According to LPL Financial’s Chief Market Strategist Ryan Detrick, gains for stocks in April have been consistent, as “stocks have closed higher in April an incredible 14 out of the past 15 years.”
“We are literally facing a turning point, due to the above named factors, and add to the performance anxiety created by the past few weeks, and it is a set-up for a big chase higher,” Lee explained.
That performance anxiety refers to the $20 billion liquidation of Archegos Capital and the subsequent volatility that roiled a handful of stocks. Investors braced for more pain related to the unwinding of Bill Hwang’s family office, but the market has since shrugged off the event and investors that expected more volatility are likely ready to step in and buy stocks.
“I think this chase starts Wednesday [morning],” Lee concluded.