MW The buying opportunity of a lifetime is coming. But not before a 40% drop for the S&P 500, says this strategist.

By Barbara Kollmeyer

Thomas Kee argues stocks need to return to fair value

Worries over Fed independence and U.S.-China trade relations both appear to be easing.

But don't look for an "all-clear" in the stock market yet, says our call of the day from Thomas Kee, president and CEO of Stock Traders Daily, which offers strategies and market-timing tools using AI-generated signals.

Kee calls his tail-risk strategy the Evitar Corte indicator, and said it has been signaling a meltdown for months. The indicator tipped pullbacks such as the dot-com crash, the credit crisis, the 2019 mini run on the FOMC and the COVID-19 crash, he told MarketWatch on Tuesday.

Off 13% from its February record close, the S&P 500 SPX is still "not even close" to the bottom, he argues. He predicates this though, "with the idea that this might actually be the buying opportunity of a lifetime, what may end up transpiring here."

Before that, S&P 500 valuation must finally start reflecting "true inherent risk," not possible during years of stimulus and "free cash" washing through the markets, he said. "The multiple on the S&P 500 has increased from what was a norm of about 16 times [forward] earnings to 26-27 times," reaching near 30 before recent selloffs, he said.

Only by removing stimulus and excess from market, which he says Trump is doing through spending cuts, will investors begin to reconsider fair value.

And returning to that historical norm means another 40% drop for the S&P 500, he said, adding that the process could be drawn-out such as in 2000 and 2001 or rapid, such as during the COVID selloff.

To be sure, he said the Fed reducing its balance sheet is one big catalyst now under way to return that multiple back to fair value. "There's been an exodus of the excess money from the market for some time already, and it's going to continue now with the fiscal stimulus, but you feel it more when fiscal policies change, because it shows up economically more directly," he said.

Tariffs have also been helping trigger a reversion back to normal risk perceptions, he said.

Kee says his core investment strategy alternates between cash and the highly liquid SPDR S&P 500 ETF SPY that he says helps completely avoid market risk.

While the strategy has been sitting in cash, he said they'll step back into markets when things start to get ugly, make a couple of percent, then go back to cash.

"The objective here is to buy and then to proactively take profits, and the best way to do that is with SPY-cash because SPY is the most liquid equity instrument in the world," he said, adding that it's much simpler than trying to manage risk through a portfolio of 30 stocks.

The compounded annual return on his CORE Strategy is around 15.5% since 2019. The S&P 500 has seen 4 years of 20%-plus returns since 2019, though Kee argues his strategy offers less volatility. "The primary objective is lower than market volatility and slow, but still steady growth."

The strategist said he's relieved to see a sense of normality could be finally be returning to markets, even if that could be painful for stocks.

"You need to let natural economic cycles prevail and that means a little weakness has to happen, but when you mask everything with overspending and buying your way out of problem, it deteriorates the foundation on which this economy was built, and that's capitalism."

Read: 10 'pure value' stocks favored by analysts to soar 20% to 96% over the next year

The markets

U.S. stock futures (ES00) (YM00) (NQ00) point to more hefty gains, with bond yields BX:TMUBMUSD10Y BX:TMUBMUSD30Y falling, the dollar DXY rising and gold (GC00) off over 2%. Bitcoin (BTCUSD) is jumping.

   Key asset performance                                                Last       5d      1m       YTD      1y 
   S&P 500                                                              5287.76    -2.02%  -8.46%   -10.10%  4.28% 
   Nasdaq Composite                                                     16,300.42  -3.11%  -10.79%  -15.59%  3.85% 
   10-year Treasury                                                     4.356      7.40    -0.10    -22.00   -29.00 
   Gold                                                                 3344.3     3.00%   10.51%   26.71%   43.18% 
   Oil                                                                  64.25      3.73%   -8.14%   -10.60%  -22.43% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

President Donald Trump said he has "no intention of firing" Fed Chair Jerome Powell after the close of Wall Street trading on Tuesday.

Tesla stock $(TSLA)$ is up 6% after Chief Executive Elon Musk soothed a big earnings miss and disappointing revenue by promising to spend less time on DOGE and more on the EV maker next month.

Boeing $(BA)$, AT&T $(T)$, Boston Scientific $(BSX)$ are reporting. Results from Texas Instruments $(TXN)$ and Chipotle $(CMG)$ are due after the close.

Intel $(INTC)$ reportedly plans to cut more than 20% of its workforce this week.

Markets will be scouring preliminary April S&P purchasing managers manufacturing and services indexes, due at 9:45 a.m., for clues over tariff stress. New home sales are coming at 10 a.m., followed by the Fed beige book at 2 p.m.

A number of Federal Reserve officials including Gov. Christopher Waller are due to speak.

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The chart

The often bearish hedge-fund manager John Hussman warns "trap door" conditions are opening for investors. His chart shows that since 1928, unfavorable conditions such as what he sees now - a decline of 10% or more in the S&P 500 from a 10-week high, widening credit spreads, plus weak consumer confidence - are "often resolved by abrupt and often substantial market losses." The green line resembling a stair step, represents the cumulative return of the S&P 500 in the 65 weeks since 1928 under those conditions.

Top tickers

These were the most active tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   AAPL    Apple 
   PLTR    Palantir Technologies 
   AMZN    Amazon.com 
   MSTR    MicroStrategy 
   TSM     Taiwan Semiconductor Manufacturing 
   AMD     Advanced Micro Devices 
   META    Meta 

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-Barbara Kollmeyer

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April 23, 2025 06:54 ET (10:54 GMT)

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