One of the most bullish forecasters on Wall Street says that the U.S. stocks will face a difficult two months, but investors may still see a strong rebound before the end of the year.

Fundstrat's research director Tom Lee, uncommonly pessimistic about stocks in the short term, predicts that the next eight weeks may be very challenging for investors. He mentioned in a video segment to Fundstrat clients on Monday that this is mainly due to the turmoil caused by the upcoming presidential election, and pointed out that the latest presidential polls show Harris and Trump still neck and neck.

Since the beginning of this month, U.S. stocks have fallen by about 4%. Lee said that the stock market may eventually fall by as much as 7%, and predicted that the S&P 500 index may bottom out at 5350 points.

But he added that this should not discourage investors who still expect the stock market to perform strongly.

Lee said, "Although these eight weeks will be challenging, I believe we should not ignore the entire year, and I think the overall performance of U.S. stocks will be quite strong for the year," and outlined six reasons why he believes the stock market could rise by 10% in the second half of the year:

1. The economy seems poised to avoid a recession

Despite concerns about an economic slowdown, the U.S. economy remains stable, with a 3% GDP growth in the second quarter.

At the same time, the employment market remained good in August, with the unemployment rate slightly decreasing to 4.2%.

"The prospect of a soft landing is still intact. I don't think we are heading towards a recession," Lee said.

2. High yield bonds rose last month.

Lee pointed out that given the overall trend of stocks relative to bonds since early September, this is a bullish signal for stocks.

3. More and more stocks are rising.

The number of component stocks in the S&P 500 index that have risen surpassed the number of stocks that have fallen, and this gap reached a new high in August. Lee stated that this is another bullish signal for the stock market, possibly hinting at another market peak approaching.

In 2007, such a situation occurred. That year, the ratio of rising and falling component stocks in the S&P 500 index reached a new high in May, just a few months before the overall index reached a new high.

"I don't think we should say that the market has peaked this year," he added.

4. The selling off of Nvidia is not an anomaly.

Investors have been frightened by the recent selling off of Nvidia stocks. As the darling of artificial intelligence, the company's stock price has dropped by about 20% from its peak in mid-August.

However, considering Nvidia's historical decline, this may not be the market omen that some investors believe it to be. Lee said that last month's sell-off marked Nvidia's 21st decline of 25%-30% in the past 25 years.

5. The stock market has experienced a strong rally in the first half of the year.

As of now, US stocks have performed strongly in 2024, with the S&P 500 index rising 10% in the first half of the year. Lee pointed out that since 1950, when the stock market has risen 10% or more in the first half of the year, there is an 83% probability of a rise in the second half, with an average increase of 10%.

"History has shown that we will end this year on a strong note," he said.

6. Investors may have gone through the most difficult period of the election year.

The stock market may have hit bottom this election year, which is traditionally a turbulent year for the market.

Lee said that although market volatility tends to peak in October in election years, the stock market often reaches a low point in August, which means investors may have already gone through the worst period of losses.

So remember this. We are in the midst of challenging eight weeks, but I believe that the view that the market bottomed out in August remains unchanged.

Lee is one of the Wall Street's earliest strategists to call stocks during the peak of the COVID-19 pandemic, and has been accurately predicting the rise of the US stocks throughout last year, gaining great fame and earning the title of "Wall Street Oracle." This year, he has also made some bold short-term decisions, including predicting a shift to small cap stocks.

Editor/ping