One of Wall Street's most bullish strategists says a stock market correction is imminent

"I think we [the S&P 500] might be approaching something close to 5,000, maybe a little higher, and then I think a drawdown follows," Fundstrat said.

• A stock market correction appears imminent after the S&P 500 rallied 21% over a period of 14 weeks, according to Fundstrat's Tom Lee.
• Lee still maintains a bullish view on stocks for 2024, but said history suggests the market is about to reach a short-term peak. 
• "I think we [the S&P 500] might be approaching something close to 5,000, maybe a little higher, and then I think a drawdown follows," Lee said.

A stock market correction appears imminent, according to one of the most bullish equity strategists on Wall Street.

Fundstrat's Tom Lee told clients on Tuesday that after the S&P 500 surged 21% over a 14-week period, a downturn is likely within the next few weeks.

"I think we [the S&P 500] might be approaching something close to 5,000, maybe a little higher, and then I think a drawdown follows," Lee said.

Lee looked at market history and found seven instances since 1927 when the S&P 500 rose 13 out of 14 weeks, as it just did. In four of those seven instances, the stock market peaked within the next two weeks.

Lee said an imminent market correction also makes sense because it would mimic a stock market trading pattern that last occurred during the bear market low in October 2022. 

The stock market jumped 20% for 16 weeks starting in October 2022 before it staged a 9% correction, and then it rallied 21% over a period of 19 weeks before it sold off by 11%. Given that the S&P 500 has recently risen by 21%, a drawdown would not be out of the ordinary, according to Lee.

Lee said he expects a 7% decline to materialize, which would send the S&P 500 to about 4,600 based on current levels.

As to what fundamental issue would drive such a decline, Lee said the timing of the Federal Reserve's interest rate cuts could spark concern among investors, especially if the central bank waits too long and the economy begins to weaken.

Despite the short-term bearish outlook, Lee reiterated his bullish view on the stock market in 2024, saying that the S&P 500 could ultimately rise to a range of between 5,200 and 5,400.

"Ultimately this is a good year, we're in a bull market," Lee said.