Tom Lee, a well-known Wall Street bull who has long predicted a big stock market rally following the Federal Reserve's rate cuts, is now calling for caution ahead of the November election.
The S&P 500 and Dow Jones Industrial Average hit new highs on Thursday, a day after the Federal Reserve cut interest rates by 50 basis points.
“The Fed’s rate-cutting cycle is setting the stage for a really strong move in the market over the next month or three months,” the head of research at Fundstrat Global Advisors told CNBC’s “Squawk on the Street” on Thursday.
However, he added that he is not yet fully convinced that stocks will continue to rise as the U.S. presidential election in November approaches.
“I think there’s still a lot of uncertainty about what the stock market is going to do between now and Election Day,” he said. “That’s why I’m a little hesitant about whether or not investors should buy in.”
With less than 100 days to go until the U.S. election, uncertainty surrounding both candidates' economic platforms is making some investors hesitant to make big bets on certain stocks and sectors before then.
In the days leading up to the Fed’s policy meeting, Lee said the rate cut would bring weeks of gains to stocks as people become more confident that the Fed will cut rates further and that the economy will achieve a soft landing.
Even so, Lee acknowledged that the market would see volatility before the election but would calm down afterward for a strong year. He has been bullish on stocks for years and has predicted that the S&P 500 could triple to 15,000 by 2030.
Other analysts also acknowledged that the presidential election will cause market volatility.
Liz Young Thomas of SoFi, an online personal finance company in the United States, said earlier this month that such volatility usually peaks in mid-October before the November election, and then the stock market rebounds once the election results are announced.
With election-related volatility on the horizon, Lee recommends investing in cyclical stocks such as industrials, financials and small-cap stocks.
Small-cap stocks will especially benefit from rate cuts and what Lee called "cyclical economic stimulus," which will come from lower consumer costs for things like mortgages, auto loans and credit cards.
“All of this is a huge positive for small-cap stocks,” he said.
Lee, nicknamed the "Wall Street Calculator" for correctly predicting a stock market boom in 2024 and making several bold short-term market predictions, was one of the first Wall Streeters to turn bullish on stocks during the COVID-19 pandemic. He noted earlier this month that U.S. stocks could fall 7% to 10%.
Article forwarded from: Jinshi Data
