- The stock market is primed to enter risk-on mode in August following a sideways summer chop, Fundstrat’s Tom Lee said in a note on Friday.
- Lee pointed to an imminent peak in Delta-variant cases and surging bitcoin prices as reasons to expect upside in stocks next month.
- These are the 3 reasons stocks are primed to move higher in August, according to Fundstrat.
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After weeks of a sideways “chop” in certain stock sectors, August could be the month risk-on mode returns for the market, Fundstrat’s Tom Lee said in a note on Friday.
Lee highlighted that since early June, epicenter stocks collapsed while a handful of names in the technology sector moved higher and propped up broad market indices. The steep drop in financial, energy, and hotel/cruise stocks came amid a surge in COVID-19 cases caused by the delta variant.
Historically, not much money has been made in stocks in the month of August, especially when markets delivered strong gains in the first half of the year.
“August is not generally a great month for stocks. The win-ratio is low at 54% overall,” Lee said, citing an analysis of data going back to 1928. And when the S&P 500 is up more than 13% in the first half of the year, August returns average -0.50%, according to the analysis.
But these 3 reasons suggest to Lee that the stock market can buck its historical trend and enter risk-on mode.
1. “Seasonal analysis suggests USA Delta spike could end in next 10-12 days, or sooner.”
Lee highlighted that low vaccinated areas are seeing far worse seasonality in COVID-19 spread than higher vaccinated areas. An analysis of COVID-19 in the 5 largest counties in Florida suggest that a peak could be right around the corner, within the next week or two, according to Fundstrat.
“Florida has been among the worst USA Delta outbreaks. Thus, this is a positive inflection, if the cases turn down next week,” Lee said.
2. “Pfizer just released data showing 3rd shot significantly boosts delta antibody response by 5x.”
Data from Pfizer suggests that a third dose of its COVID-19 vaccine leads to a 100-fold increase in Delta neutralizing antibodies relative to a non-vaccinated person,, and a 5-fold increase relative to the second dose, Lee highlighted.
“The case for boosters is very high and is a sound policy strategy,” Lee said, while acknowledging the main challenge is convincing about a third of the US that has yet to be vaccinated to get their shots.
“But this should not change the fact that the Delta risk to the US is strongly diminished. And thus, we are seeing positive tilt on the Delta variant risk,” Lee explained.
3. “Bitcoin, the global non-US ‘risk-on’ proxy is pushing above $40,000 = risk on!”
Bitcoin is set to post its first positive monthly gain in four months, and its best week since February, as the cryptocurrency rallied more than 30% from $30,000 to $40,000. And Lee still expects bitcoin to close above $100,000 in 2021, representing potential upside of 163% from current levels.
“Bitcoin is the risk-on asset for emerging market investors, more than equities. Risk appetite seems to be returning in the past week,” Lee said, adding that the rally is occurring as a lot of bad news is priced in following China’s crackdown.
“So for now, we are upgrading our baseline expectations for August. Instead of ‘chop’, it’s ‘upside bias,” Lee concluded.