Not many on Wall Avenue had been capable of name the massive S&P 500 comeback this 12 months after the index plummeted into its first bear market in a technology final 12 months. However then there was Tom Lee. Again in December, the veteran analyst and cofounder of Fundstrat International Advisors argued that the S&P 500 would bounce greater than 20% this 12 months to 4,750—a value goal 17% larger than Wall Avenue’s median forecast. And in March, Lee doubled down on his bullish take, arguing shares had been set to soar because of falling inflation, a dovish Fed, and cheap valuations after 2022’s dismal 12 months. Since then, the S&P 500 has rallied practically 10%, for an over 14% upswing 12 months to this point. It’s wanting fairly good for Lee’s prognostication, and now he’s again with one other huge name.
Lee, who is mostly identified for his bullish forecasts and assist of cryptocurrencies, says that shares will proceed their march larger. Regardless of greater than a 12 months of constant recession predictions from Wall Avenue (in all probability amounting to probably the most broadly predicted recession in historical past), he notes that the economic system has remained resilient, with the unemployment fee hovering close to pre-pandemic lows and GDP development persevering with within the first quarter.
“I believe as a substitute of a recession unfolding, the economic system is definitely slipping into an enlargement,” Wall Avenue’s largest bull instructed CNBC Monday.
Right here’s what Lee is seeing that everyone else is likely to be lacking.
“Situations for income to truly outperform”
Funding banks have repeatedly warned that the Federal Reserve’s speedy rate of interest hikes will ultimately sluggish the economic system sufficient to spark a recession, with some prime strategists predicting that company earnings will fall all through the rest of the 12 months and crush inventory costs. However Lee pointed to falling commodity costs, therapeutic provide chains, and the sturdy labor market as proof that the economic system—and company America—could also be in higher well being than many think about.
“I believe these are circumstances for income to truly outperform, and at a time when buyers’ positioning has been so offsides,” he mentioned, noting that buyers have been “very cautious” to speculate this 12 months amid constant recession predictions.
Lee has seen a few of Wall Avenue’s recession fears flip to FOMO (fears of lacking out) in current weeks, which may enhance flows into the inventory market. And whereas many analysts have cautioned that this 12 months’s inventory market rally has primarily been led by a couple of tech giants, the Fundstrat cofounder doesn’t see that as a adverse.
“I don’t assume shares are overextended. I believe the FANGs did the heavy lifting [in this year’s rally],” he mentioned, referring to the well-known Fb-Apple-Netflix-Google tech basket, “and if we’re slipping into an enlargement, lots of different names are going to take part.”
Lee isn’t completely alone in his bullish view. Jay Hatfield, Infrastructure Capital Administration’s CEO, instructed Fortune that he believes inflation will fall to only 3.1% in June, enabling the Fed to finish the speed mountain climbing marketing campaign that has weighed on shares later this 12 months.
“We imagine that the Fed can be compelled to capitulate on their ‘entrenched’ concept of inflation, simply as they capitulated on their ‘transitory’ concept, because the year-over-year knowledge verify that inflation is plunging,” he mentioned.
Hatfield now sees the S&P ending the 12 months in a spread between 4500 and 5000, as inflation fades and “an A.I. increase continues to gas the inventory market and will increase financial exercise.”
For Tom Lee, the one factor that would quash the market’s rally this 12 months is an aggressive Fed, which, as some economists instructed Fortune earlier right now, isn’t glad that it has absolutely licked inflation but. However Lee doesn’t see that taking place.
“I believe this degree of inflation goes to begin to look extra acceptable to the market and to the Fed,” he mentioned. “After which the query is, ‘Is the Fed okay with the place shares are’? And I believe they’re.”
This story was initially featured on Fortune.com
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