Fundstrat International Advisors cofounder Tom Lee was among the many few voices on Wall Avenue final yr who predicted a inventory market surge whereas most of his friends noticed a stoop amid widespread expectations for a recession.
However he—and the U.S. financial system—proved the doomsayers unsuitable. The truth is, among the many forecasters surveyed by Bloomberg, Lee’s name in 2023 turned out to be probably the most correct.
And this yr, he’s nonetheless calling his pictures and nailing them. In early June, he stated the S&P 500 would hit 5,500 by the tip of the month. As of Friday’s shut, it was at 5,464.62.
Now, he’s obtained a longer-term forecast, and it’s a whopper: by the tip of this decade, Lee stated the S&P 500 may hit 15,000, representing upside of greater than 170%.
On a current episode of Bloomberg’s Odd Heaps podcast, which was recorded on Tuesday, he started by explaining his evidence-based strategy to forecasting, which appears throughout historical past and throughout belongings. He stated the bond market is smarter than the inventory market: “That’s why they say equities are the land of C students.”
He additionally believes traders can’t combat the Federal Reserve and focuses extra on themes that can drive progress, equivalent to how millennials are reshaping the financial system, the worldwide labor scarcity that can enhance AI and tech shares, in addition to vitality safety and cybersecurity. By selecting the strongest shares inside every theme, he has outperformed the market yearly since 2019, Lee stated.
Wall Avenue usually underestimates the influence of recent applied sciences, that are often adopted first by youthful folks of their teenagers and 20s whereas most high funding professionals are of their 40s and 50s, he added, noting that cell telephones have been initially dismissed as toys for the wealthy. One thing related is going on with AI.
“The adoption rate of AI is staggering, but the use case is important because there’s a labor shortage,” Lee stated. “So to me, I think it’s very likely we’re underestimating how much revenue all these companies will make.”
And because the demand for staff continues to outstrip provide, AI will change into extra important. By finish of decade, he estimated the worldwide labor scarcity shall be equal to 40 million staff, or about $3 trillion value of wages. Contemplating that almost all of automation is from {hardware} like semiconductors, which means whoever is supplying the chips might need $2 trillion in income, he defined.
Finally, expertise will signify 40%-50% of world inventory market weighting, up from about 20% right this moment, Lee stated.
“In a normalized world, if this is a normal S&P cycle following demographics, I could provide a chart later, S&P should be potentially 15,000 by the end of the decade,” he stated. “As you move into longer timeframes, that’s probably where I think we’re moving towards.”
The inventory market is already closely focused on tech and AI shares, with Nvidia alone accounting for greater than a 3rd of the S&P 500’s good points this yr. In the meantime, Wall Avenue is scrambling to maintain up with the market’s relentless rally, with extra analysts elevating their year-end targets.
Such bullishness and market focus have raised considerations that the AI hype is an indication of a bubble about to pop. However Lee downplayed these worries, pointing to key variations between earlier bubbles just like the dot-com increase and bust.
He famous that Nvidia has a a lot steeper aggressive benefit than Cisco did in the course of the early phases of the web increase. And in contrast to the dot-com bubble, there’s a lack of overly hyped IPOs right this moment, he added.
Lee isn’t the one Wall Avenue bull making daring predictions. Ed Yardeni has been pounding the desk about one other “Roaring 20s” super-cycle and has stated the S&P 500 would leap to six,000 by subsequent yr.
And by the tip of the last decade, he stated the inventory index may attain 8,000—not as excessive as Lee’s estimate however nonetheless adequate for a 46% leap.
