Finance Associated Press September 26 (Editor Huang Junzhi) Known as the "Wall Street Oracle", Tom Lee, co-founder and head of research at the American investment institution Fundstrat Global Advisors, has recently predicted that the US stock market will end the year strongly, urging investors to "stay on target" and hold stocks until the end of the year.

In a recent report, Lee presented three reasons and forecasted that despite the uncertainty surrounding the November US presidential election, the US stock market will remain strong by the end of this year.

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 outlook for the US stock market in 2024 is broadly correct, and the S&P 500 index has risen by 20.65% year to date. Long-term wise, Lee is very bullish on US stocks, forecasting that the S&P 500 index could double and reach 15,000 points by 2030.

Sufficient firepower.

"The message we want to convey is, do not deviate from the target, be aware that we still have firepower," he wrote. According to the above report, this "firepower" refers to the "margin debt" which dropped to $797 billion in August, far below the peak of $936 billion in October 2021.

Margin debt refers to the amount borrowed by individuals and institutions using their holdings of stocks as collateral, as monitored by the Financial Industry Regulatory Authority (FINRA) in the United States. Simply put, margin debt is an indicator of stock market leverage. The rise in leverage often indirectly reflects the rebound of the US stock market. Therefore, setting new records in margin debt is not alarming. What is alarming is when margin debt ceases to rise, indicating that investors have begun to reduce leverage.

Lee wrote that taking history as a lesson, this indicator will fluctuate with the stock market. And considering it still has room to rise, this indicates that the US stock market will further rise.

"We have not seen the top until margin debt really starts to roll over," he wrote.

The Fed cut interest rates.

Lee further stated that the potential upward trend of margin debt comes as the Federal Reserve turns dovish, which should act as a catalyst for the stock market. He analyzed the data and found that since 1971, when the Fed starts cutting rates while the economy remains strong, the S&P 500 index performs very well.

According to Lee, there have been seven instances where Fed rate cuts coincided with the economy not going into a recession, with win rates of 100% for three months and six months forward stock market returns, with average returns of 8% and 13% respectively. This indicates that the US stock market will continue to hit historical highs by the end of the year.

"Do not fight the Fed," he said.

Historical Patterns

Finally, Lee emphasized that the S&P 500 index often experiences strong upward momentum in the second half of the year after rising by 10% in the first half. The index surged by 14% in the first half of 2024.

The data shows that since 1950, in this scenario, the average increase in the s&p 500 index in the second half of the year is 9.8%, with a win rate of 83%.

"The only subdued year was during Volcker's 'hawkish' period. But now, the Fed is dovish," he wrote.