“1. The Fed announced a 50 basis point rate cut in September, lowering the federal funds rate target range from 5.25% to 5.5% to 4.75% to 5%; 2. Tom Lee stated that although the Fed's rate cut is bullish for the stock market, caution should continue to be exercised until the official November election.
On September 20th, Caixin reported that Tom Lee, co-founder and head of research at Fundstrat Global Advisors, a US investment institution, issued a recent warning that although the large interest rate cut by the Federal Reserve on Wednesday is bullish for US stocks, caution should continue to be exercised before the official election in November.
In an interview on Thursday, he said, "I think the Fed's rate cut sets a strong foundation for the market in the next month or three months."
"However, from now until election day, I think there is still a lot of uncertainty in the stock market. That's why I am a bit hesitant about whether investors should invest," he said.
In fact, a few days before the Fed's policy meeting, Lee had mentioned that the rate cut would lead to weeks of gains for the U.S. stock market, as the market believed the Fed was about to further cut rates, and the economy could experience a soft landing. However, he also pointed out that there would be volatility before the election, but it would calm down afterwards, ushering in a strong year.
As expected, after the 50 basis point rate cut by the Fed, the U.S. stock market began to "celebrate" on Thursday: all three major indices collectively rose, with the S&P 500 Index and the Dow reaching new historical highs. According to Evercore ISI data, in non-recession periods, in the six months after entering a rate cut cycle, the S&P 500 Index has historically risen an average of 14%.
Lee was one of the few bulls on Wall Street last year. At the end of 2022, he predicted that the S&P 500 index would soar by over 20% to 4,750 points in 2023. As it turned out, the index unexpectedly surged last year, falling just over 30 points short of his target. According to reports, among the strategists tracked by Bloomberg, Lee's predictions were the closest, earning him the nickname "Street Wizard".
Not only that, his optimistic expectations for the U.S. stock market in 2024 have largely been correct, with the S&P 500 Index rising by 20.47% so far this year. In the long term, Lee is very bullish on the U.S. stock market. He predicts that the S&P 500 Index could double, reaching 15,000 points by 2030.
Not only Lee, but other analysts also believe that the presidential election will cause market volatility.
Liz Young Thomas from SoFi, an online personal finance company in the US, said earlier this month that this volatility typically peaks in mid-October, before the November election. Once election results are announced, the stock market will begin to rebound.
Due to the upcoming election-related volatility, Lee suggests investing in cyclical stocks such as industrial, financial, and small-cap stocks. Small-cap stocks, in particular, will benefit from interest rate cuts and the "economic cyclical boost" mentioned by Lee, which will lead to lower consumer costs such as mortgage loans, auto loans, and credit cards.
"All of these factors are favorable for small-cap stocks," he said.
Editor/Emily