Why Wall Street’s Biggest Bull Sees The Stock Market Hitting A New Record In The Second Half Of The Year

Amidst a year marked by significant challenges in 2022, Tom Lee, Head of Research at Fundstrat Global Advisors and a long-standing equity bull, emerged as one of the most optimistic Wall Street strategists for 2023. In December, he set a year-end price target of 4,750 for the S&P 500, which was considered one of the most bullish forecasts for the benchmark index.

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As the second half of the year begins, Lee has become even more bullish on the stock market. On Monday, he raised his year-end target for the S&P 500 by 75 points to 4,825. This upward revision suggests a potential gain of approximately 8.4% from the level reached on Wednesday and surpassing the previous all-time high finish of 4,796.56 recorded on January 3, 2022.

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Lee believes that the stock market reached its bottom on October 12, 2022, and the subsequent nine-month rise signals the start of a new bull market. He attributes this positive outlook to a significant decline in inflation, which he sees as the war the Federal Reserve is fighting and seemingly winning. Lee suggests that a decline in inflation, particularly in the headline consumer price index to around 3%, could relieve pressure on the Federal Reserve, potentially leading to a more dovish stance.

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While the market recovery this year has been driven by mega-cap technology stocks and the enthusiasm surrounding artificial intelligence, concerns have been raised regarding the narrow market breadth and overreliance on a small group of stocks. Lee, however, argues that market breadth has improved considerably and expects this trend to continue.

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Lee emphasizes that easing inflation and an improving growth outlook are key factors that could lead to an expansion of price-to-earnings ratios, indicating resilience in companies and the beginning of a new earnings-per-share cycle.

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Despite criticisms and skepticism, Lee defends his 2022 bullish call, highlighting that those who followed his view remained invested or moved to defensive positions, which has proven to be beneficial as stocks have made a strong recovery in 2023.

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Although uncertainties remain, such as inflation, Fed policy decisions, geopolitical tensions, and economic factors, Lee believes that the focus on risks may not surprise investors to the same extent. He suggests that there is a higher likelihood of a panic-buying moment rather than a panic-selling moment, as skeptics may eventually acknowledge the sustained market performance.

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While Lee's optimistic outlook is not without potential challenges, he remains confident that the stock market will continue to rally in the second half of the year.

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