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Fundstrat’s Tom Lee is growing bullish on the stock market amid the S&P 500’s 16% rise this year.
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Lee raised his year-end price target for the index to 4,825 from 4,750, which would represent new highs if reached.
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“We had a huge drop in inflation, and … the inflation war is the war the Fed is waging and appears to be winning,” Lee said.
Wall Street’s biggest bull is getting more bullish on the stock market after the first half of the year delivered tantalizing gains for investors, with the S&P500 up about 16% while Nasdaq 100 jumped 39%.
by Fundstrat Tom Lee raised his S&P 500 year-end price target at 4,825 vs. 4,750 in a Monday note, which would represent potential gains of 8% from current levels and new highs for the stock market, if reached.
His confidence in his bullish call to the market is derived a steady decline in inflation, which should give more breathing space to the Federal Reserve in its monetary policy decisions, as well as “undemanding” stock market valuations and a potential boom in productivity thanks to artificial intelligence.
“We’ve had a huge drop in inflation, and as we’ve argued for most of 2022, the inflation war is the war the Fed is waging and appears to be winning,” he said. , adding that he expects headline inflation to ease towards 3% by the end. of the year.
If consensus expectations on Wall Street become more dovish in line with this view, stock prices could jump as investors begin to reallocate their $5.5 trillion cash pile to stocks, according to Lee.
He also observed that the forward price-to-earnings ratio for the S&P 500, excluding mega-cap tech stocks, was 15.7x at the start of the year, and now stands at 16.4x, which is “at penalty” higher. Lee said he expects the valuation multiple to continue to rise for the stock market as corporate earnings growth turns positive.
“We believe the P/E should rise as companies are seen as resilient and we are at the start of a new EPS cycle,” he said.
Also helping to drive this earnings growth, as well as a continued rally in the stock market, is the rise of AI, which Lee called a potential “supercycle” similar to the advent of the PC in the 1980s, the Internet in the 1990s, and cloud computing in the 2010s.
“AI could be the start of a supercycle,” Lee said, pointing to a recent presentation by Coatue Capital. “And Nvidia’s first quarter results were the “aha” moment. The timing makes sense. AI also solves the problem of inflation. By the way, doesn’t this justify the rise of FAANG? Not as a bubble but as a sign of the emergence of this cycle.”
Lee remains by far the most bullish market strategist this year. The average year-end price target for the S&P 500 is just 4,091, according to data from Bloomberg. The most bullish market strategist after Lee is BMO’s Brian Belski, who has a year-end price target of 4,550 for the S&P 500.
Read the original article at Business Intern
