In a bold projection, Tom Lee, the head of research at Fundstrat, one of Wall Street’s prominent bulls, anticipates the S&P 500 to surge by a robust 13% by the close of 2024. Lee’s optimistic forecast, set at 5,200 for the benchmark index, rests on the premise of declining inflation contributing to eased financial conditions and the avoidance of a US economic recession.
This target sets Lee apart, ranking as the highest among strategists monitored by Yahoo Finance. Notably, his prediction surpasses the forecasts of other financial entities such as Deutsche Bank and BMO Capital Markets, both projecting the S&P to reach 5,100 by the end of the upcoming year.
Lee’s bullish stance follows his 4,750 call on the S&P at the onset of the current year. At that time, he justified his higher-than-consensus prediction by emphasizing his expectation of a more significant decline in inflation compared to others, coupled with a belief that the US economy would avoid recessionary pitfalls. With the market currently responding positively to subdued inflation figures and indications of ongoing economic growth, Lee envisions a similar narrative unfolding in 2024.
Reflecting on the past year, Lee acknowledged the accuracy of stock market technicians compared to economists. He anticipates a continuation of this trend in 2024, asserting, “In 2024, I think that this is actually still a residual game plan…the technicians will get the year right and the economists are gonna get the year wrong.”
Central to Lee’s outlook is the importance of market breadth. His top sector picks include small caps, Financials (XLF), and real estate (XLRE), all of which trailed the market during most of the 2023 rally. Despite his significant call on the tech sector last year, Lee remains overweight on tech this year, emphasizing the resilience of the Magnificent 7 to outperform the broader market.
Lee underscores the potential of small caps and financials to outshine even the tech sector, particularly with anticipated interest rate declines due to Federal Reserve rate cuts. Small caps, known for their shorter-term debt structures, stand to benefit from reduced capital costs, while financials and real estate are also poised for gains with mortgage rates expected to fall in tandem.
Regarding positioning, Lee observes, “When it comes to positioning, no one owns financials…No one’s really long, small caps. You know, there’s a lot of upside.”
Acknowledging a potential risk to his forecast, Lee considers a scenario where the US economy enters a recession. However, he downplays the impact on stocks, stating, “That’s not a thesis killer because that means the Feds gonna cut more. So you shouldn’t be that fearful.”
In conclusion, with Tom Lee’s optimistic projections and a positive market sentiment, all signs point to the S&P 500 to surge in 2024, potentially setting the stage for a year of remarkable growth.
Source: Yahoo Finance
