According to Fundstrat’s Tom Lee, the stock market has the potential to surge by as much as 30% in 2024. Lee, known for his consistently bullish outlook on Wall Street, predicts that the S&P 500 could reach 5,200 by the end of the year, implying a 9% increase from its current levels. However, he notes that there is a 50% chance of the index surpassing this target, citing a century-long trend.
Lee’s optimism is grounded in the anticipated rate cuts by the Federal Reserve and a continued decline in inflation. He envisions these factors providing a favorable environment for stocks to soar in the coming year. In a recent CNBC interview, Lee emphasized that consumers would likely recognize the slowdown in the rate of price increases, with the possibility of inflation dropping to 2%, making it “very visible” in the next year.
Highlighting the historical correlation between stocks and Treasury yields, Lee points out that since 1900, stocks have tended to achieve double-digit returns when the 10-year Treasury yield is in the 3%-4% range. He asserts that 65% of the time stocks have traded within this yield range, the S&P 500 has recorded a price-to-earnings multiple exceeding 18. Additionally, in 50% of these instances, the price-to-earnings ratio surpassed 20.
With recent weeks witnessing Treasury yields falling within this historically significant range due to increased expectations of Fed rate cuts, Lee’s 5,200 price target assumes similar stock multiples. However, he suggests that an S&P 500 multiple of 20, coupled with an expected corporate earnings growth of around 10%, could result in a substantial 30% surge in stocks for the year.
Lee’s track record from the previous year adds credibility to his projections. In 2023, he accurately forecasted that the S&P 500 would surge over 20%, with the index ultimately ending the year at around 4,769, less than 1% away from Lee’s target.
