Tom Lee Projects S&P 500 to Continue Uptrend
Tom Lee, the veteran analyst and co-founder of Fundstrat Global Advisors, made a big prediction last December that the S&P 500 would increase by over 20% in 2023 to 4,750, which is 17% higher than Wall Street’s average forecast. Lee’s bullish forecast was primarily based on falling inflation levels, a positive economic outlook, a low-interest rate environment and what he perceived as reasonable valuations after the gloomy performance of 2022.
As of today, Lee’s prediction is holding up, and he has now come out with another big call: to continue the uptrend of stock prices. Despite leading voices on Wall Street predicting recession for over a year now, Lee believes that the economy continues to show resilience. The unemployment rate has remained near pre-pandemic levels, and the GDP continues to show steady growth in the first quarter.
Lee believes that the economy is slipping into an expansion, and this will be excellent news for those who have investments in stock markets. In this article, we will delve further into the economic indicators that Lee believes are favorable for investors.
Factors Leading to Profit Outperformance
There have been consistent predictions from Wall Street of a coming recession that will crush stock prices. The Federal Reserve’s rapid interest rate hikes are believed to be sufficient to slow the economy enough to spark a recession. However, Lee points to several factors, including falling commodity prices, improving supply chains, and a strong labor market, that indicate that corporate America, and the economy, may be in better health than people imagine.
Lee believes that these are favorable conditions for profits to outperform, especially at a time when investor positioning has been so cautious due to consistent recessionary predictions. Wall Street’s recession fears have now turned into a fear of missing out (FOMO) in recent weeks, leading to increased flows into the stock market.
Lee does not think that stocks are overextended and says the FANGs – Facebook, Apple, Netflix, and Google – did most of the heavy lifting in this year’s rally. He believes that, if we are indeed slipping into an expansion, many other companies will also start participating.
Inflation Decrease Will Fuel Stock Market Boom
Jay Hatfield, CEO of Infrastructure Capital Management, has also jumped on the bullish bandwagon. He believes that inflation levels will fall to just 3.1% in June, which will enable the Fed to end the rate hiking campaign that has weighed on stocks.
Hatfield believes the Fed will ultimately be forced to give in on their inflation-stubborn position, as year-on-year data show that inflation is plunging. He also sees the S&P ending the year between 4,500 and 5,000 as inflation fades and an A.I. boom fuels the stock market to increase economic activity.
The Market’s Only Risk Factor
For Tom Lee, the only threat to the market’s rally this year is an aggressive Fed, not convinced that it has licked inflation yet. Some economists warn that Lee’s prediction may not fully materialize and that it is still too early to end the Federal Reserve’s rate-hiking campaign – but Lee is confident in his prediction. He thinks this level of inflation is going to start to look more acceptable to the market and to the Fed, and then the question is whether the Fed is okay with where stocks are. And Lee believes that they are.
Tom Lee’s bullish projections for the stock market are worth paying attention to, especially with the current global economic landscape. Indicators point to a continued upward trend, but as with all matters of investing, due diligence and monitoring the markets regularly should be the norm.