Fundstrat’s Tom Lee says shares could be heading for new all-time highs (ATHs) in the coming months.
In a new interview on CNBC, Lee say that three key factors could extend the S&P 500’s 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 also starting to cut rates. And one economy that’s kind of languishing is China, and now we have some stimulus and what seems like a kind of bazooka policy supporting that region. And we have a lot of money on the sidelines. So I think that’s a formula for stocks to do quite well over the next three to 12 months, and that’s why we think we’ll get well above 5,700 before the end of the year.”
The S&P 500 is trading above 5,751 at the time of writing.
Lee also says small-cap stocks are poised to breakout. A small-cap stock refers to companies with a market capitalization that is generally between about $250 million and $2 billion.
“Small caps are within a few percentage points of their all-time highs. And Mark Newton, our head of technical strategy, thinks we’re still in an upward momentum for small caps that are just getting started. But yeah, it was disappointing. I think it’s been particularly disappointing because China and small caps have historically been quite highly correlated, so we’re seeing an increase in risk appetite in some places.
But I think it’s only a matter of time. I think some of this will play out between now and next month, around Election Day. There is a lot for investors to digest. It includes oil prices and the VIX (CBOE Volatility Index) has increased. I think these are things that are difficult to say today between now and early November. I want to buy risk outright. So I think small caps still have good fundamentals. Earnings growth is accelerating. The median price-to-earnings ratio (P/E) is 11 times, which is almost seven turns lower than the S&P. So I think we can still argue that small caps are starting to make multi-year profits. It’s just been very choppy.”
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