Investors should buy the dip and can expect stocks to continue higher, according to Fundstrat’s Tom Lee.
Lee said the extreme decline means most are underinvested in stocks.
He predicts the index will hit 4,750 this year, retesting an all-time high of 4,800.
Investors should buy any dip in stocks and can expect the market to continue rising from here, according to Tom Lee, head of research at Fundstrat.
Lee, who has been bullish on stocks through much of last year’s bear market, pointed to the strong performance of the S&P 500 versus 2023, with the benchmark up 12% from benchmark levels. January. Market breadth, a measure of which stocks in the market are gaining, is also rising, with stocks of tech, small-cap, industrial and regional banks all rising over the past month.
That momentum could continue for the rest of the year, Lee suggested, particularly if easing inflation leads the Fed to suspend interest rate hikes. Markets have priced a 71% chance that the Fed will suspend rate hikes in June.
Meanwhile, Lee forecast the S&P 500 to hit 4,750 by the end of the year, retesting its all-time high of around 4,800.
“It really strengthens the case for buying the dip and expecting stocks to continue higher – i.e. if the national and consensus view is caution, that means most are underinvested,” Lee said in a note Wednesday.
He added that a “downside trifecta” came from sell-side strategists, institutional investors and retail investors, all of whom are showing general pessimism toward stocks. But high levels of pessimism could be an opposite indicator for the market: The S&P 500 has seen gains over the next 12 months 94% of the time investors were this bearish in the past, according to research from Bank of America.
Lee is one of the most optimistic voices on Wall Street, advocating for investors to enter the market despite fears of a coming recession. He previously predicted that the S&P 500 would hit an all-time high in 2022, although the index eventually ended 20% lower.
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