According to Tom Lee from Fundstrat, the S&P 500 has the potential to surge by as much as 30% in the coming year. Lee, known for his consistently bullish outlook on Wall Street, anticipates that a continued drop in inflation and potential interest rate cuts by the Federal Reserve will contribute to this optimistic scenario.
Lee’s forecast envisions the S&P 500 reaching 5,200 by the end of 2024, reflecting a 9% increase from its current levels. The cornerstone of his predictions lies in the expected rate cuts by the Federal Reserve and a significant decline in inflation, which he believes will provide favorable conditions for stock market growth in 2024.
In an interview with CNBC, Lee highlighted the potential for consumers to recognize a slowdown in the rate of price increases, emphasizing that inflation dropping to 2% would be a “very visible” possibility in the upcoming year. According to Tom Lee
Tom Lee from Fundstrat suggests that there is a greater than 50% probability of double-digit gains for the S&P 500 in 2024, even when considering the robust double-digit gains recorded in the previous year.
Lee points to a historical trend that spans over a century, associating stocks with Treasury yields. According to his analysis, when the 10-year Treasury yield falls within the range of 3% to 4%, stocks have tended to achieve double-digit returns.
He further notes that during 65% of the time when Treasury yields traded within this range, the S&P 500 achieved a price-to-earnings multiple exceeding 18. Additionally, in 50% of these instances, the price-to-earnings ratio surpassed 20. This historical trend leads Lee to posit that the current market conditions may set the stage for double-digit gains in 2024.
Treasury yields have fallen within this golden range over the past few weeks, thanks to investors ramping up their expectations for Fed rate cuts. And though Lee’s 5,200 price target assumes stock multiples staying the same, an S&P 500 multiple of 20 would imply a 30% surge in stocks this year, he said, assuming corporate earnings are set to grow around 10%.
Lee was spot-on in his stock market forecast in 2023, having predicted the S&P 500 would soar over 20% to end the year around 4,750. The benchmark stock index ended the year around 4,769, less than 1% away from Lee’s target.