Photo: Bloomberg Television
JP Morgan’s Tom Lee has earned a reputation for being a perma-bull for his consistently bullish calls on the stock market.And that bullishness has generally worked out for him. Last year, he basically nailed the trajectory of the S&P 500.
However, we were taken aback by a note Lee put out on February 22. It was titled “Stepping Aside Short-Term; Fade Strength and Look for Better Entry Point Around 1400-1450; Big Picture Constructive.”
The title speaks for itself. And anyone who listened would’ve missed out on a rally that took the Dow Jones Industrial Average to its all-time high.
In a note released this morning, Lee revisits that call.
“Equities have since risen further, ending positive for February and up 2% so far in March,” he writes. “What have we overlooked?”
He offers five points, which we paraphrase:
- Underperforming mutual fund managers are buying the dips.
- Announced share buybacks are surging.
- Dividend yields continue to be more attractive than bond yields.
- Tail risks, or the risk of a market shock, are fading.
- The Fed continues to reiterate its commitment to keep monetary policy easy.
Having said that, Lee is reiterating his short-term cautiousness.
“Are we still expecting a pause?,” he asks. “Yes.”
But just in case stocks continue to rise:
“What could go wrong with our view? It is possible that equities are entering a new phase in this bull market—lower volatility and steadier gains. Thus, the greatest risk to our view is to the upside— that rather than a pullback, the market simply is undergoing a rolling consolidation (laggard sectors fall to the wayside). Our big picture view remains constructive.”
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