Former JPMorgan strategist and Fundstrat founder Tom Lee is confident that US equity markets will soar after January lows in February. In the pessimism of investors, the expert sees the potential for "bullish" sentiment in the coming months.
Tom Lee, founder of the research company Fundstrat, believes that the US stock market will experience a violent rally in February against the background of market sensitivity after collapses. The expert predicts that by the end of the first half of 2022, the S&P 500 may soar above 4,850 points, which is 7.76% higher than the last closing level of 4,500.54 points. The forward three-month yield is 7.1%, and the six-month yield is 13%, Business Insider reports, citing an expert.
Tom Lee expects rapid growth to new records in 2022, as many bad news are already embedded in market prices, and historical data indicate a high probability of growth after a rapid fall. "The S&P 500 has seen an 11% collapse from peak to low in 14 days. Although many things seem normal in the era of a pandemic, a fall at such a rate is actually rare," Lee stressed. He added that over the past decade, the market has experienced such a sharp correction only five times, and each time there was a rapid rally at the end of the sale.
Tom Lee has previously stated the likelihood of a rally amid a record drop in the S&P 500 by almost 5.3%, which was the biggest January drop since 2009. The broad market index in January experienced the worst month since March 2020, when the pandemic began, CNBC reports. "Recovery after rapid sales is usually symmetrical, that is, a violent rally should be expected," the expert is sure.
"The fall of Facebook does not cancel out the basic scenario of the February rally," Tom Lee said. On February 3, the shares of Meta Platforms, the parent company of Facebook, showed a record collapse of more than 26% in the history of the US markets, to $237.8 per share. As a result of trading on Friday, the securities closed at $ 237.09.
The expert drew attention to several factors that may be harbingers of the rally:
amid the tightening of the US Federal Reserve policy, retail investor sentiment reached its worst level since 2013, which contributed to a record accumulation of funds;
Over the past two months, retail investors have invested $53 billion in money market funds;
The markets sold off everything on Thursday, February 3, after Facebook's weak results.
"When markets are so fragile and nervous, the probability of positive surprises is higher," Lee said.
Strong financial reports also contribute to the bullish mood. Of the 53% of S&P 500 companies that have already reported earnings, 80% have exceeded profit forecasts by an average of 6%, and 75% have exceeded revenue forecasts by an average of 4%. "These results suggest that 'operational leverage is maintained,'" Lee said. He also noted that daily cases of COVID-19 infection in New York and Connecticut fell by 90% compared to the peak, which should help increase consumer confidence, as well as help the labor market.
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