Fundstrat’s Tom Lee anticipates a 5% surge in the stock market during December, propelling the S&P 500 to test record highs. However, he warns that this ascent won’t be a smooth trajectory, and potential volatility may arise from upcoming job and inflation reports.
Lee advises investors to view any potential stock dip as a buying opportunity, emphasizing a positive outlook for the second half of December. According to him, the stock market is set to “zig-zag” towards record highs, targeting a 5% increase to reach 4,800.
This surge would place the S&P 500 close to its January 2022 all-time intraday high of 4,818 and just above its record closing high of 4,796. Lee suggests that soft October personal consumption expenditures price data, expected to be released on Thursday, could drive initial market gains.
However, he cautions that the journey to new highs won’t be straightforward, with potential downside volatility triggered by forthcoming jobs and consumer inflation data. The reports, scheduled for release on December 8 and December 12, could impact bond yields and stock prices, especially if they exceed consensus estimates, raising concerns about further Federal Reserve rate hikes.
Lee explains the anticipated “zig-zag” by pointing out the market’s hyperreactivity to conflicting forces such as “falling goods and housing inflation” against resilient labor markets. While a robust jobs report might be on the horizon due to the rehiring of tens of thousands of auto workers in November, stock market declines following the reports are expected to be short-lived.
Fundstrat recommends buying the dip, emphasizing a soft landing scenario for the economy despite ongoing recession concerns. Lee highlights the significance of the Fed’s FOMC meeting and press conference on December 13, identifying it as a major catalyst for continued stock price appreciation. He anticipates Fed Chairman Jerome Powell to keep interest rates unchanged and suggests the potential for a “dovish shift” among Fed members.
Despite the S&P 500’s impressive 20% surge this year, Lee notes that investors have withdrawn $240 billion from equity mutual funds and ETFs. He sees this sidelined capital as potential buying power for investors aiming to catch up with this year’s market rally.
