Source: Jin10 Data
A strategist who has accurately predicted the trend of the US stock market in the past few years said that he will raise the target price of the S&P 500 index to 5800 points by the end of the year and also expects the index to soar 175% by 2030.
Tom Lee, co-founder of Fundstrat, has been accurately predicting the stock market trend in the past few years. He suggested that although the benchmark S&P 500 index (SPX) has hit a historic high, he would still raise the target price of the index by the end of this year.
On Monday, in an interview with Bloomberg's Odd Lots podcast, Lee said that strong earnings plus trillions of dollars of cash still on the sidelines could push US stocks higher, with the S&P 500 index potentially reaching 5800 points by the end of the year.
Lee said in the interview, "Initially, our expected EPS for the S&P 500 index was $270, and the expected P/E ratio was 18. Now the expected EPS is closer to $285, and the P/E ratio should be higher. We think 20 times or even 21 times is appropriate, which will increase our target price for the index to around 5800 points."
This means that the S&P 500 index may rise another 6% from its current level. The large stock benchmark index has risen nearly 15% this year and has set 31 closing record highs.
Lee believes that the $6 trillion in cash in the money market fund can help boost the market. "The market is in urgent need of cash," he said.
"According to a report from the Financial Industry Regulatory Authority (FINRA), margin debt in the United States is currently 20% lower than it was in October 2021. So there isn't much money flowing in the stock market. I know it sounds strange because the market is at historic highs. So if there is money actively trading, it will only buy stocks in the sector with large trading volumes, which are technology stocks. If monetary policy is relaxed or people are more convinced of it, the expansion of market breadth will be very intense later this year."
Lee's remarks indicate that he will join the ranks of many Wall Street insiders who recently raised the target price of the S&P 500 index. On June 14, Goldman Sachs raised its target price for the S&P 500 index to 5600 points. Evercore ISI raised its target price from 4750 points to 6000 points on June 17- according to a survey of CNBC market strategists, this is the highest level on Wall Street. Citigroup raised its target price from 5100 points to 5600 points on June 18. Lee told Bloomberg that he will officially update his market outlook at the end of June.
Regarding the long-term prospects of the US stock market, Lee expects that by 2030, the S&P 500 index will rise by about 175% from its current level and reach 15,000 points.
Lee explained, "This is about a 20% annual increase. The growth of US stock returns will contribute to a 12% to 15% increase, while the growth of the P/E ratio every year will be 5%."
The multiple of valuations for US stocks increasing at a rate of 5% per year seems like a high prediction, but Lee said that stocks deserve higher valuation premiums, especially after the COVID-19 pandemic.
"One thing I think needs to be remembered is that the COVID-19 pandemic has shown us that companies are much more resilient than we realize, and the reason we allocate them higher P/E ratios than before is because we know that even if the global economy comes to a halt, unemployment rises to 20%, and there is a huge supply chain disruption, companies can still manage their earnings. I think they should get more credit, so I think the compound growth rate of the valuation multiple can be higher than 5%."
Lee also emphasized two thematic factors that will drive the stock market upward in the long run: the millennial generation and a global labor shortage.
Lee said, "Some of our work depends on what we call thematic drivers. One of them is the millennial generation. Since 2018, we have been talking about how the millennial generation (the largest generation) is reshaping the economy, mainly through financial technology and changing preferences. But of course, the upcoming intergenerational wealth transfer will be as high as $80 trillion."
"The second of course is a serious global labor shortage, which has been a problem since 2015 and will not be resolved until 2035. The previous two global labor shortages caused parabolic fluctuations in tech stocks," he further said.
Lee's prediction of a global labor shortage is based on global demographic data, that is, the speed at which golden age workers replace older generation workers is not fast enough.
This means companies will turn to technology and automation to fill the gap left by the golden age workers, ultimately spending trillions of dollars on silicon-based technology that can accommodate robotics and artificial intelligence.
Li has always been optimistic about the US stock market and his opinions are often correct. As a widely followed strategist, Li was one of the few on Wall Street who correctly predicted that the market would rebound from the sell-off during the COVID-19 pandemic in 2020 and rise in 2023 and 2024 due to the artificial intelligence boom. Last year, he set a target price for the S&P 500 index and missed it by just over 30 points. According to reports, he was the closest among the strategists tracked by Bloomberg, and earned the nickname "Wall Street Wizard".
As for the latest performance, in early June he said that the S&P 500 index could reach 5500 points by the end of the month. With only one week left until the end of the month, the current trading price of the index is about 5485 points, only 15 points lower than his short-term target.
Editor/Lambor