Stocks Fell. Tom Lee Says You Should Buy The Dip. 

Stocks didn’t pull through in a challenging week. 

The S&P 500 tumbled 1.6% this week, its worst week since late May, while the Nasdaq Composite fell 2.2%. 

At the beginning of the week, there were signs of optimism. A trade deal with Europe was struck, and officials from the United States and China agreed to extend the trade truce to mid-August to give themselves time to reach an agreement. Both of those were considered positive developments ahead of the Aug. 1 midnight deadline for resuming tariffs. 

That date ended up being pushed to Aug. 7  with new rates set on many countries, such as 35% on Canada and 39% on Switzerland. 

Since investors were already on edge Friday, it didn’t help when the much-awaited jobs report for July painted an abysmal picture for the labor market, further dragging down stocks and sending yields tumbling. 

It was perceived as so bad that President Trump fired the Bureau of Labor Statistics commissioner

The U.S. added 73,000 jobs last month, much lower than the 100,000 economists’ estimated. What was even more worrisome is that the numbers for the previous two months noted larger-than-normal revisions. The May number decreased to 19,000 from 144,000 and the June number fell to 14,000 from 147,000. 

It could be argued that stocks didn’t fall even more afterward because a softer labor market strengthens the case for the Federal Reserve to cut interest rates this year, which in turn would boost stocks

“The economy is solid and soft enough that the Fed needs to make insurance cuts,” Fundstrat Head of Research Tom Lee wrote on Friday.

Just on Wednesday, the Federal Reserve said it would keep interest rates unchanged, with chair Jerome Powell arguing that the board wants to be cautious in case tariffs lead to inflation. But Friday’s market reaction shows that investors are betting that worries about a weakening labor market will take precedence over any potential inflation. 

So Lee recommended to investors that Friday’s declines were an “obvious buy the dip moment.” 

Head of Technical Strategy Mark Newton agrees. “I do feel that today’s dip is buyable and should begin to stabilize by next Monday or Tuesday at the latest,” he wrote. 

Newton recommends tech stocks, even though many of the heavyweights’ earnings failed to impress investors this week. Amazon shares fell 8.3% a day after earnings, and Apple tumbled 2.5%. 

“For now, I see further downside as being short-lived and largely contained.”

Stocks Fell. Tom Lee Says You Should Buy The Dip. 

Chart of the Week

Stocks Fell. Tom Lee Says You Should Buy The Dip. 

One other reason why Lee thinks the case for the Fed to keep rates steady is weakening is because the central bank’s preferred inflation gauge came in lower than expected. On Thursday, the PCE index showed that inflation in June rose in line with expectations. The top contributors were housing, financial services, food services and household supplies, which were unlikely to have been impacted by tariffs, as shown in our Chart of the Week. Of that, Lee said “we understand why the Fed is on hold, but to us, inflation is not necessarily accelerating.”

Recent ⚡ FlashInsights

A lot of smart people seem to think UNH -4.67%  is ready to bottom, but i don’t see it yet based on my work. Breaching May lows on very heavy volume has taken the stock down to new 5-year lows. It’s wave structure and monthly DeMark TD Buy Setups indicate this recent leg down from early July could be its final pullback from last November’s peak, but volume remains extraordinarily high on weakness and it maintains a very large high to low range. Timing suggests another 4-5 weeks before a material low, so i feel like the end of September makes sense, but one could look near 2020 lows, which look like strong support and also equate to an alternative projection of a Fibonacci-based 38.2% of my own “wave 3” decline from early April. Thus, the area near $190 (March 2020 lows technically were just under $188) but a combination of DeMark weekly exhaustion, Elliott-wave structure and Fibonacci based projection targets suggest this area should be important within the next 4-6 weeks, if reached. At present, it looks clearly early, technically speaking, to try to buy dips given such heavy volume on this most recent decline.
Aug 1 · 5:42 PM
Similar to Tom Lee, i do feel that today’s dip is buyable, and should begin to stabilize by next Monday/Tuesday at the latest. The technical structure still suggests this is a corrective type pullback, and while it has moved to multi-day lows, has neared some initial support. I feel that 6185-6235 area likely contains this decline technically before a sharp push higher into mid-August. However, this rally has begun to lose some momentum and market breadth has waned a bit, so the character and participation on an upcoming rally will be very important. For now, i see further downside as being short-lived and largely contained. Closing up from today’s lows will help to add confidence that markets can push higher starting early next week, which for now is uncertain.
Aug 1 · 11:44 AM
A lot of US economic data today and on balance, to me:
  • shows the market is expecting the Fed to make more cuts in 2025 than Fed stated just a few days ago
  • July jobs was soft a +73k vs 104k expected
  • July ISM manufacturing 48.0 vs 49.5
  • U Mich 1-yr inflation lower at 4.5% vs 5.0% last month
  • VIX surged to 20.0 +20% today
Equities are down -1.5% to start the first day of August. To me, this is an obvious “buy the dip” moment. The economy is solid and soft enough the Fed needs to make insurance cuts. The inflation story from goods is hardly going to have traction if jobs market is soft. Consumers will not tolerate it. So Fed will soon capitulate on its stance. That is what we expect to evolve positively in August So please BUY THE DIP –> remember, dips have been shallow because this is sitll the “most hated v-shaped rally”
Aug 1 · 11:05 AM

FS Insight Video: Weekly Highlight

Stocks Fell. Tom Lee Says You Should Buy The Dip. 

Key incoming data

  • 8/1 8:30 AM ET: Jul Non-farm Payrolls Mixed
  • 8/1 9:45 AM ET: Jul F S&P Global Manufacturing PMI Tame
  • 8/1 10:00 AM ET: Jul F U. Mich. 1yr Inf Exp Tame
  • 8/1 10:00 AM ET: Jul ISM Manufacturing PMI Tame
  • 8/4 10:00 AM ET: Jun F Durable Goods Orders MoM
  • 8/5 8:30 AM ET: Jun Trade Balance
  • 8/5 9:45 AM ET: Jul F S&P Global Services PMI
  • 8/5 10:00 AM ET: Jul ISM Services PMI
  • 8/7 8:30 AM ET: 2Q P Unit Labor Costs
  • 8/7 8:30 AM ET: 2Q P Nonfarm Productivity QoQ
  • 8/7 9:00 AM ET: Jul F Manheim Used Vehicle Index
  • 8/7 11:00 AM ET: Jul NYFed 1yr Inf Exp
Stocks Fell. Tom Lee Says You Should Buy The Dip. 

Stock List Performance

Stocks Fell. Tom Lee Says You Should Buy The Dip. 
Stocks Fell. Tom Lee Says You Should Buy The Dip. 

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