Fundstrat’s Tom Lee says that stocks may be heading to new all-time highs (ATHs) over the coming months.
In a new interview on CNBC, Lee says that three main factors may extend the S&P 500 bull market into next year.
“Bull markets are supported by strong fundamentals. And this is a case where not only has the economy survived extremely high interest rates, but the Fed is beginning to cut rates. And an economy that has sort of been languishing has been China, and now we have some stimulus and what looks like some bazooka policies that is supporting that region. And we have a lot of cash on the sidelines. So I think that this is a formula for stocks to do pretty well the next three to 12 months, and that’s why we think that we would be well beyond 5,700 before year end.”
The S&P 500 is trading above 5,751 at time of writing.
Lee also says that small-cap stocks may be on the verge of breaking out. A small-cap stock refers to companies with a market cap generally between about $250 million to $2 billion.
“Small caps, they’re within a few percentage points of an all-time high. And Mark Newton, our head of technical strategy, thinks we are still in an up move for small caps that just started recently. But yes, it’s been disappointing. I think it’s been especially disappointing because China and small caps historically are fairly highly correlated, and so we are seeing risk-on appetite increasing in some places.
But I think it’s just a matter of time. I think part of this is between now and the next month, which is around election day, there’s a lot for investors to digest. It’s including oil prices and the VIX (CBOE Volatility Index) is elevated. I think these are things that are hard for someone to say today between now and early November, I want to be buying risk outright. So I think small caps still have good fundamentals. Earnings growth is accelerating. The median P/E (price-to-earnings ratio) is 11 times, which is almost seven turns lower than the S&P. So I think there’s still the case to be made that small caps are starting a multi-year gain. It’s just been very choppy.”
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