“Be contrarian,” Tom Lee says. “Investors are expecting 2015 to be a low-return year and are focusing on deflation and Fed tightening.”
Lee, the former chief US equity strategist for JPMorgan and current head of Fundstrat Global Advisors, expects the S&P 500 to hit 2,325 by the end of 2015.
That would represent a massive 15% gain from Wednesday’s closing price.
“[T]he current bull market is not going to end simply because ‘stocks have gone up too much,'” Lee writes in a note to clients.
Since its March 2009 low, the S&P 500 has surged by over 200%.
“The buyside is fairly cautious, seeing downside stemming from: (i) deflationary pressures of the 40% year-over-year oil decline, deceleration in China, Eurozone weakness, and the fall in 5-year inflation breakevens; and (ii) Fed monetary tightening,” Lee says.
Among other things, Lee continues to see returns fuelled by growth in investment spending as equipment and structures continue to wear out.
“Capital stock is again showing signs of pent-up demand, and as a consequence, companies and households will have to invest,” he writes. “In other words, obsolescence is playing a role here. Equipment needs to be replaced as it reaches the end of its useful life.”
Lee, however, is mindful of the possibility that things might not work out as he sees it.
“What could go wrong?” he asks. “The biggest risk is spreading contagion from the weakness in oil to credit markets and sovereign debt. We think these concerns are exaggerated, and this is reflected by the fact that US High Yield and US Investment Grade trades wider than Euro High Yield and Euro Investment Grade.”
All of this fits into Lee’s longer-term call that we are in the midst of a secular bull market.
Lee entered 2014 as the most bullish strategist on Wall Street with his forecast that the S&P 500 would hit 2,075 by year-end. The S&P cleared that hurdle on Dec. 4.
Lee now joins RBC Capital’s Jonathan Golub as being the most bullish Wall Street strategists followed by Business Insider. Here’s what other top Wall Street strategists are expecting for next year:
- Credit Suisse’s Andrew Garthwaite: 2,100
- Goldman Sachs’ David Kostin: 2,100
- Barclays’ Jonathan Glionna: 2,100
- Deutsche Bank’s David Bianco: 2,150
- BTIG’s Dan Greenhaus: 2,200
- Citi’s Tobias Levkovich: 2,200
- Bank of America Merrill Lynch’s Savita Subramanian: 2,200
- UBS’ Julian Emanuel: 2,225
BMO’s Brian Belski: 2,250
- Morgan Stanley’s Adam Parker: 2,275
- Oppenheimer’s John Stoltzfus: 2,311
- RBC’s Jonathan Golub: 2,325