Fundstrat's Tom Lee Predicts 30% Surge In Stock Market In 2024 Amid Expectations Of Fed Rate Cut And Sharp Decline in Inflation

Fundstrat’s Tom Lee suggests a potential 30% surge for the S&P 500 next year, anticipating a decline in inflation and a possible interest rate cut by the Fed.

What Happened: Lee, a renowned bullish strategist, anticipates the S&P 500 to touch 5,200 by the close of the year, indicating a 9% increase from the present level, reported Business Insider.

Lee’s predictions hinge on the expected Fed rate cuts and a significant drop in inflation. He believes these factors will provide the necessary conditions for stock prices to skyrocket in 2024.

“The rate of price increases is slowing,” Lee commented in a recent CNBC interview, signaling that inflation could fall to 2%, a “very visible” possibility for 2024.

He also suggested a more than 50% likelihood of the S&P 500 achieving double-digit gains in 2024 despite similar gains last year. This prediction is based on a century-long trend between stocks and Treasury yields.

Lee pointed out that since 1900, stocks have often seen double-digit returns when the 10-year Treasury yield sits between 3%-4%. A 30% surge in stocks this year would be implied by an S&P 500 multiple of 20, assuming corporate earnings grow around 10%.

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Why It Matters: Lee’s 2023 prediction of the S&P 500 soaring over 20% to end the year at around 4,750 was nearly spot-on, with the index closing the year at around 4,769.

In November 2023, BMO's chief investment strategist, Brian Belski, also forecasted a robust performance for the stock market in 2024 despite potential recession threats. His prognosis pointed towards a “normal and typical” year for the stock market in 2024, with gains evenly distributed across sectors and sizes.

In an earlier note, Lee also maintained his optimism about the overall market performance in 2024. He also identified four key factors behind this anticipated early-year pullback. The primary concern is the disparity between the market’s anticipation of six interest rate cuts and the Federal Reserve’s projection of just three.

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