Not many on Wall Street were able to call the huge S&P 500 comeback this year after the index plummeted into its first bear market in a generation last year. But then there was Tom Lee. Back in December, the veteran analyst and cofounder of Fundstrat Global Advisors argued that the S&P 500 would jump more than 20% this year to 4,750a price target 17% higher than Wall Streets median forecast. And in March, Lee doubled down on his bullish take, arguing stocks were set to soar due to falling inflation, a dovish Fed, and reasonable valuations after 2022s dismal year. Since then, the S&P 500 has rallied nearly 10%, for an over 14% upswing year to date. Its looking pretty good for Lees prognostication, and now hes back with another big call.
Lee, who is generally known for his bullish forecasts and support of cryptocurrencies, says that stocks will continue their march higher. Despite more than a year of consistent recession predictions from Wall Street (probably amounting to the most widely predicted recession in history), he notes that the economy has remained resilient, with the unemployment rate hovering near pre-pandemic lows and GDP growth continuing in the first quarter.
I think instead of a recession unfolding, the economy is actually slipping into an expansion, Wall Streets biggest bull told CNBC Monday.
Heres what Lee is seeing that everybody else might be missing.
Conditions for profits to actually outperform
Investment banks have repeatedly warned that the Federal Reserves rapid interest rate hikes will eventually slow the economy enough to spark a recession, with some top strategists predicting that corporate earnings will fall throughout the remainder of the year and crush stock prices. But Lee pointed to falling commodity prices, healing supply chains, and the strong labor market as evidence that the economyand corporate Americamay be in better health than many imagine.
I think these are conditions for profits to actually outperform, and at a time when investors positioning has been so offsides, he said, noting that investors have been very cautious to invest this year amid consistent recession predictions.
Lee has seen some of Wall Streets recession fears turn to FOMO (fears of missing out) in recent weeks, which could increase flows into the stock market. And while many analysts have cautioned that this years stock market rally has mainly been led by a few tech giants, the Fundstrat cofounder doesnt see that as a negative.
I dont think stocks are overextended. I think the FANGs did the heavy lifting [in this years rally], he said, referring to the famous Facebook-Apple-Netflix-Google tech basket, and if we are slipping into an expansion, a lot of other names are going to participate.
Lee isnt totally alone in his bullish view. Jay Hatfield, Infrastructure Capital Managements CEO, told Fortune that he believes inflation will fall to just 3.1% in June, enabling the Fed to end the rate hiking campaign that has weighed on stocks later this year.
We believe that the Fed will be forced to capitulate on their entrenched theory of inflation, just as they capitulated on their transitory theory, as the year-over-year data confirm that inflation is plunging, he said.
Hatfield now sees the S&P ending the year in a range between 4500 and 5000, as inflation fades and an A.I. boom continues to fuel the stock market and increases economic activity.
For Tom Lee, the only thing that could quash the markets rally this year is an aggressive Fed, which, as some economists told Fortune earlier today, isnt satisfied that it has fully licked inflation yet. But Lee doesnt see that happening.
I think this level of inflation is going to start to look more acceptable to the market and to the Fed, he said. And then the question is: Is the Fed okay with where stocks are? And I think they are.
