Tom Lee of Fundstrat anticipates a potential surge of up to 30% in the stock market next year, bolstered by expectations of a reduction in inflation and the Federal Reserve's anticipated interest rate cuts.
Lee, renowned for his optimistic market forecasts, projects the S&P 500 to climb to 5,200 by the end of 2024, signifying a 9% increase from its current levels.
The foundation of Lee's forecast lies in the anticipated actions of the Fed and a significant drop in inflation, setting the stage for a robust stock market performance in 2024. He points out that as consumers notice a slowdown in price increases, there's a tangible possibility of inflation falling to 2%, a scenario he discussed in a recent CNBC interview.
Lee is confident in the S&P 500's prospects for 2024, asserting a more than 50% likelihood of double-digit gains, especially following its performance last year. This optimism is underpinned by historical trends correlating stock performance with Treasury yields. Since the early 20th century, stocks have frequently yielded double-digit returns when 10-year Treasury yields range between 3%-4%. Currently, Treasury yields are within this 'golden range', driven by heightened investor expectations for Fed rate cuts.
Furthermore, historical data shows that when Treasury yields are within this range, the S&P 500 often achieves a price-to-earnings multiple exceeding 18, and in half of the cases, the ratio surpasses 20. Assuming corporate earnings grow by about 10%, a 20 multiple for the S&P 500 could translate to a 30% increase in stock values this year.
Lee's credibility is bolstered by his accurate stock market predictions for 2023, where he foresaw the S&P 500's over 20% rise, ending the year just shy of his 4,750 target. His insights offer valuable perspectives for wealth advisors and RIAs considering strategic moves in the upcoming financial year.
