FOMC could trigger a very big rally in equities, says Fundstrat's Tom Lee
Speakers
Tom Lee
— Managing Partner & Head of Research, Fundstrat
Summary
Tom Lee of Fundstrat says the Fed is likely ceding to market pressures and that a 25 bp hike would not hurt stocks, setting up a potentially very big equity rally. He expects a substantial rally into month-end and one of the biggest Q4/year-end rallies in years, with the S&P 500 possibly above 8200, led by tech, the Mag-7, software, and the intact AI trade. He also sees midterm gridlock as market-friendly, while warning that big-pullback risks remain once sentiment turns bullish.
- Tom Lee reviews PCE distortions and says inflation should fall without Fed help.
- He expects future Fed hikes to be priced out, pressuring Treasury yields.
- He cites sidelined cash and pessimistic sentiment as fuel for a near-term equity rally.
- He targets the S&P 500 above 8200 by year-end, driven by tech and AI.
- He views midterm gridlock as a favorable backdrop for stocks.
- He keeps a watch on big-pullback risks after the expected rally.
- AI is described as central to US and global growth, with guardrail concerns.
Ideas
FOMC can trigger big equity rally
He expects a substantial post-midterm rally, with Q4 potentially one of the biggest rallies and momentum continuing into next year; he says the S&P 500 could easily be above 8200 by year-end as tech, Mag-7, software, and the AI trade recover.
Future hikes priced out, yields falling
If the Fed takes out future hikes, Treasury yields should fall, supporting a more favorable backdrop for risk assets.
Tech will do heavy lifting
Tech is expected to do a lot of heavy lifting in the rally, with the AI trade intact and helping the market emerge from its correction.
Mag-7 coming back to life
The Mag-7 are starting to come back to life, which supports the expected year-end equity rally.
Software names are doing better
Software names, which have been important holdings, are doing better and are contributing to the market recovery.
