Stocks are bottoming and the market is approaching the perfect buying opportunity for investors, Fundstrat says

• The perfect opportunity for investors to buy the dip in stocks is approaching, according to Fundstrat's Mark Newton.
• The S&P 500 will drop to 4,200 before recovering, Newton said on CNBC Tuesday. 
• That's largely because the Fed is probably done hiking interest rates.

Stocks are in the process of bottoming out, and that means the perfect buying opportunity could soon present itself for investors, according to Fundstrat's global head of technical strategy Mark Newton.

In an interview with CNBC on Tuesday, Newton predicted that the S&P 500 could continue to slide down to 4,200, representing a 4% decline from the index's current level. That will be partly stoked by short-term market volatility, he suggested, with stocks dropping earlier this week as Hamas staged its deadly attack on Israel.  

But that downside is likely be contained, which suggests a recovery in stock prices is also around the corner. 

"History has shown us that during times of military conflict, that market volatility has historically been pretty short-lived," Newton said, adding that the technical longer-term outlook for markets had not meaningfully deteriorated because of the war.

"We think that pessimism combined with seasonal tailwinds heading into Q4 make us pretty optimistic that we're in a bottoming process and it should be a good time for risk assets," he added.

Markets are also largely expecting the Fed to be done with its rate hikes, meaning interest rates will likely peak soon before pulling back. Lower rates could power economic growth, he said, which could be a boon for certain sectors, like tech.

And though investors remain concerned over high inflation and potential recession, much of the inflationary pressure still lingering in the economy "ought to figure itself out on its own," Newton said. Some economists have suggested the same given the lagged impact of rate hikes on the real economy, meaning prices could continue to decline without additional rate hikes.

Meanwhile, any coming downturn is also likely to be postponed, thanks to unprecedented demand carrying the housing market and the labor market, Newton added.

Fundstrat has previously pointed to falling inflation and robust economic growth to make the case for a blistering rally to take off in stocks. That could take the S&P 500 to a new all-time-high in 2023, Fundstrat's Tom Lee previously predicted. He erroneously made the same call in 2022, when the index ended the year 20% lower.