Fundstrat’s Tom Lee has been known for his accurate predictions on quick market moves in recent years. He has made unconventional and bold short-term calls on where equities will go next, especially amidst the unique environment created by the pandemic and its aftershocks. Lee’s track record speaks for itself, with many of his predictions coming to fruition. For instance, his call that the S & P 500 would rise 100 points on a positive consumer price index print was proven correct last year. His estimate of a 4% rise in the S & P 500 to a record 5,500 points in June is also currently on the mark, with the index already up more than 3.5% and briefly surpassing that level this week.
Confidence Based on Historical Data
Lee has mentioned how he gets nervous about making calls with specific timeframes and outcomes, as being right on both fronts can be challenging. However, his confidence in making such calls comes from the fact that they are based on historical data and probability. While it is generally considered difficult to predict both the level and timing accurately, Lee’s methodology has shown success in the past. He believes in the importance of looking at past trends and statistical probabilities to forecast future market movements.
Addressing Inflation Concerns
One of Lee’s recent successes was predicting a strong May and June performance following a correction in April. His understanding of the “true” inflation picture has been a critical factor in his predictions. While many are worried about a return to high inflation rates reminiscent of the 1970s and 1980s, Fundstrat has been focused on analyzing the internal components of the consumer price index. By identifying that 55% of the components are below pre-pandemic levels, Lee has offered a different perspective on the overall inflation scenario. He remains optimistic that once certain factors, such as shelter and auto insurance, correct themselves, the inflation picture will improve.
Despite a shaky start to the year for small cap stocks, Lee remains bullish on their future performance. He acknowledges the negative inflation surprises that impacted these stocks early on, leading to the Russell 2000 being down about 0.5% while the S & P 500 is up almost 15%. However, Lee believes in the potential for a significant turnaround, with a projected surge of 50% in 2024 for small caps. He points to recent inflation readings that have been well-received by the market as a positive indication for small caps moving forward.
Lee emphasizes that all his calls are grounded in probability and precedent, which help explain why certain outcomes are likely to repeat in the current market environment. By analyzing the range of potential outcomes, Lee gains confidence in predicting both the direction and magnitude of market moves. His ability to assess risk and opportunity based on historical data has been a key factor in his successful predictions.
Tech Sector Analysis
Lee’s understanding of the tech sector has been particularly noteworthy, especially during the market turmoil of 2022. He correctly assessed the risk of inflation being mispriced, leading to a rebound in 2023 that saw the S & P 500 soar more than 24%. Throughout the ups and downs of 2023, Lee maintained his bullish view on big technology stocks, such as Meta, Amazon, Apple, Netflix, and Alphabet. His foresight into tech’s market leadership resurgence, despite doubts following 2022, resulted in significant gains for investors in the sector.
While Lee remains optimistic about the market’s future, he acknowledges that a recession could make him turn bearish on stocks. Fundstrat’s overall constructive view in recent years has been influenced by the belief that the risk of a downturn is not as significant as perceived by many. Despite potential challenges ahead, Lee’s data-driven approach and focus on historical trends continue to guide his predictions and offer valuable insights for investors.