The carnage in U.S. equities is increasingly likely to give way to a V-shaped recovery, predicts Fundstrat Managing Partner Thomas Lee.
Investors, he believes, have been on a "buyers strike" in early 2016, waiting for data to provide further visibility on the economy's health, or lack thereof.
A seemingly bearish technical factor is a key element of the strategist's optimism on equities: More than four of five stocks on the New York Stock Exchange are trading below their 200-day moving average. That's a testament to how few stocks were holding the market aloft prior to the downdraft that began in late December and—according to Lee—also a sign that the selling has gone on long enough.
If this episode is just a "growth scare," rather than a precursor to a recession, history suggests it's time to buy, based on Lee's analysis.
Since 1994, the share of NYSE-trading stocks trading below their 200-day moving average has sunk to 17 percent or lower on 15 occasions. In all instances that did not occur during bear markets, the Standard & Poor's 500-stock index was up over the next three months by an average 14 percent.
"In other words, things have been so bad, that a lot of bad news is baked in," Lee wrote, calling this 17 percent level a "pivot point." (Key here is whether the downward move in equities becomes so pronounced as to plunge them into a bear market.)
So far, the shape of the U.S. Treasury yield curve does not presage a recession, the strategist suggested.
Lee has been among the most consistently bullish strategists on Wall Street. For 2016, he is sticking with the call he made in 2015: that the S&P 500 will end the year around 2,325.