Mark Newton, global equity strategist at Fundstrat, said on Tuesday that the U.S. stock market is in the process of bottoming out, meaning investors may soon see the perfect buying opportunity.
In an interview, Newton predicted that the S&P 500 could continue its slide to 4,200, a 4 percent drop from the index's current level. Short-term market volatility, he said, would partly fuel that sentiment. Earlier this week, stocks fell as Hamas launched a deadly attack on Israel.
But at the same time, he also noted that this downward trend may be manageable, suggesting that a recovery in stock prices is also on the horizon.
"History tells us that market volatility has historically been fairly short-lived during military conflict," Newton said, adding that the market's long-term technical outlook has not been significantly worsened by war.
"The combination of pessimism and seasonal positivity going into the fourth quarter makes us fairly optimistic that the economy is in the process of bottoming out and that now should be a good time for risk assets," he added.
The Fed is also widely expected to end interest rate hikes, meaning rates could peak soon and then fall back. He said lower interest rates could boost economic growth, which could be good for certain sectors such as technology.
Newton said that while investors remain concerned about high inflation and a potential recession, most of the remaining inflationary pressures in the economy "should resolve themselves." Given the delayed impact of higher interest rates on the real economy, some economists believe that without further rate hikes, stock prices could also continue to fall.
At the same time, any impending recession could be delayed because of unprecedented demand in the housing and labor markets, he added.
Fundstrat has previously pointed to falling inflation and strong economic growth as reasons why stocks will rally.
Fundstrat co-founder and head of research Tom Lee previously predicted that this could put the S&P 500 at an all-time high in 2023.