Fundstrat co-founder Tom Lee, who has accurately predicted stock market moves over the past few years, hinted that he will raise his price target for the benchmark S&P 500 (SPX) by the end of this year, even though the index has hit a record high.

In an interview with Bloomberg’s Odd Lots podcast on Monday, Lee said strong earnings combined with trillions of dollars in cash still sitting on the sidelines could drive further gains in U.S. stocks, with the S&P 500 potentially reaching 5,800 by the end of the year.

Li said in the interview, "Initially, our earnings per share forecast for the S&P 500 was $270, and the price-earnings ratio was 18 times. Now the earnings per share forecast is closer to $285, and the price-earnings ratio should be higher. We think 20 times or even 21 times is appropriate, which makes our target price for the index expected to rise to around 5,800 points."

That means the S&P 500 could rise another 6% from current levels. The index is already above Lee’s December price target of 5,200. The large-cap benchmark has risen nearly 15% this year and has hit 31 record closing highs.

Lee believes there is a powerful force that could help boost the market: the $6 trillion in cash sitting in money market funds. “The market is starving for cash,” he said.

He said, "According to the FINRA report, margin debt today is 20% lower than it was in October 2021. So there is not a lot of money flowing in the stock market. I know this is strange because the market is at an all-time high. So if there is money actively trading, it will only buy the high-volume sectors, which is technology stocks. If monetary policy is loosened or people are more convinced about it, then the expansion of market breadth later this year will be very intense."

Lee's comments suggest he will join a chorus of Wall Streeters who have recently raised their price targets for the S&P 500. On June 14, Goldman Sachs raised its S&P 500 price target to 5,600. Evercore ISI on June 17 raised its price target to 6,000 from 4,750 -- the highest level on Wall Street, according to a CNBC market strategist survey. Citigroup on June 18 raised its price target to 5,600 from 5,100. Lee told Bloomberg he will formally update his market outlook at the end of June.

As for the long-term outlook for U.S. stocks, Lee expects the S&P 500 to rise about 175% from its current level to 15,000 by 2030.

“That’s about a 20% increase per year. U.S. earnings growth will account for 12% to 15% of that increase, and the P/E ratio is 5% per year,” Lee explained.

A 5% annual increase in valuation multiples for U.S. stocks may seem like an overly high forecast, but Lee said stocks deserve to maintain a high valuation premium, especially after the COVID-19 pandemic.

“I think one thing to remember is that COVID has proven to us that businesses are much more resilient than we realized, and the reason we’re assigning them higher multiples than we were before is because we know that even if the global economy came to a halt and unemployment went up to 20% and there were huge supply chain disruptions, companies could still manage earnings. I think they should get more credit, so I think valuation multiples can compound higher than 5%.”

Lee also highlighted two thematic factors that could drive further gains in the stock market in the long term: millennials and the global labor shortage.

“Part of our work relies on what we call thematic drivers,” Lee said. “One of those drivers is millennials. We’ve been talking since 2018 about how millennials, the largest generation, are reshaping the economy, and they’re doing it primarily through fintech and changing preferences. But of course, what’s coming now is a massive intergenerational wealth transfer of $80 trillion.”

“The second is of course the severe global labor shortage, which started in 2015 and will not be resolved until 2035. The two previous global labor shortages caused parabolic fluctuations in technology stocks,” he further said.

Lee's prediction of a global labor shortage is based on global demographics, where prime-age workers are not replacing older generations fast enough.

That means companies will turn to technology and automation to fill the gap for prime-age workers, ultimately spending trillions of dollars on silicon-based technologies that enable robotics and artificial intelligence.

Lee has always been optimistic about U.S. stocks, and his views are often correct. As a widely followed strategist, Lee was one of the few on Wall Street who correctly predicted that the market would rebound from the sell-off during the COVID-19 pandemic in 2020 and rise in 2023 and 2024 due to the artificial intelligence boom. The target price he set for the S&P 500 (SPX) last year was only more than 30 points away from the index's final price. His predictions were reportedly the closest among the strategists tracked by Bloomberg, earning him the title of "Wall Street's God of Calculation."

As for the latest results, in early June, he said that the S&P 500 could reach 5,500 by the end of the month. Now, with only one week left in the month, the index is currently trading around 5,485, just 15 points below his short-term target.

The article is forwarded from: Jinshi Data