Tom Lee urges investors to buy the dip after Dow falls 631 points

The Dow Jones Industrial Average fell 631 points to 51,461 on Wednesday. The S&P 500 slipped 0.5% to 7,551, while the Nasdaq Composite held roughly flat at 25,978.

Fundstrat’s Tom Lee urged investors to buy the dip and named cyclicals, financials and energy as the sectors best placed to lead a rebound. Lee pointed to research from Goldman Sachs projecting that inflation pressures will ease over the next two quarters and added that the shift should allow rate-sensitive groups to recover. “I would be buying this dip,” Lee urged.

The selloff hit cyclical industries, banks and energy hardest as traders rotated out of rate-sensitive stocks after officials signaled more rate hikes could come before year-end. August retail sales topped forecasts, easing some recession concerns. Transportation and logistics firm J.B. Hunt fell 13.3% after warning of a sharp earnings decline.

Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management, offered a different view. He described the Fed’s hike as unnecessary and called the market reaction overdone. “I didn’t think they should hike rates,” Greenhaus maintained. He said weak non-residential construction has weighed on GDP for roughly eight to nine quarters and warned that algorithmic trading likely amplified the swing.

Analysts noted the near-term market outlook will depend on upcoming inflation data and further signals from policymakers.