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Fundstrat's Tom Lee says it seems more and more seemingly that the inventory market bottomed in October.
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Fundstrat highlighted six the explanation why it thinks the underside is in and a rally in shares can proceed.
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“Markets backside earlier than fundamentals 80% of the time and S&P 500 P/E (2024) is 15x ex-FAANG,” Lee mentioned.
Fundstrat's Tom Lee has rising confidence that the inventory market already bottomed in October and is poised for extra positive aspects forward.
In a Thursday word to purchasers, Lee made the case that traders stay too pessimistic and may get on board with the concept a brand new bull market has began, particularly provided that fairness valuations usually are not stretched.
“Markets backside earlier than fundamentals 80% of the time and S&P 500 P/E (2024) is 15x ex-FAANG,” Lee mentioned. “That is hardly costly. In truth, among the many most costly sectors are defensives like Staples (19.6x), Utilities (17.5x), and Healthcare (16.7x).”
That is not the one cause why Lee sees extra upside for shares.
These are the six the explanation why the inventory market already bottomed on this bear market cycle and is poised to proceed to rally in direction of Lee's 2023 year-end S&P 500 worth goal of 4,750, in line with the word.
1. “Inflation Peaked.”
Date: June 2022
Rationale: Throughout three prior bear markets, equities bottomed when CPI peaked, in line with Lee. Inflation hit an annualized peak of 9.1% in June 2022, in comparison with 5% final month.
2. “Excessive-yield spreads peaked.”
Date: July 6, 2022
Rationale: “Excessive-yield [bond] unfold peaks lead fairness bottoms. Excessive-yield possibility adjusted unfold has not made a brand new excessive, confirming July 6 was the low,” Lee mentioned. An index of high-yield bonds have jumped 7% from their 52-week low and are up simply over 2% year-to-date.
3. “Rule of 1st 5 days.”
Date: January 5, 2023
Rationale: “Since 1950, the 7 precedent situations of a destructive prior yr and the first five trading days gain[ing] more than 1.4%, seven out of seven instances markets [were] larger,” Lee mentioned.
When the S&P 500 was up more than 1% in the first five trading days of the yr, prefer it was this yr, shares completed the yr larger 87% of the time, with a median achieve of 15%.
4. “Two consecutive quarters of positive aspects.”
Date: March 31, 2023
Rationale: “Since 1950, this has by no means occurred in a bear market,” Lee mentioned.
When the S&P 500 posted back-to-back quarterly gains of a minimum of 5%, prefer it did the final two quarters, the inventory market was larger the subsequent yr 87% of the time, with a median achieve of 13.5%.
5. “Greater than 15 weeks above 200-week shifting common.”
Date: February 14, 2023
Rationale: “Since 1950, 12 situations and by no means a single occasion markets made a brand new low,” Lee mentioned, referencing the truth that the inventory market has traded above its 52-week shifting common for about six months.
6. Investor sentiment is overly bearish.
Date: January 12, 2023
Rationale: Lee highlighted that the distinction between bullish responses and bearish responses in the AAII weekly investor sentiment survey hit an excessive low earlier this yr. “Solely third time since 1987” this has occurred, in line with Lee. The final time it has occurred was in 1991 and 2009, which each occurred after a significant market low.
“Decide your poison. We see new bull,” Lee mentioned.
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