The US housing market recovery is the most important reason to still believe in the bull market, according to Fundstrat’s Tom Lee.
The past few weeks, and especially the last 24 hours, have been rough for stock market bulls.
On Thursday, the S&P 500 had its worst day in 18 months, the Dow plunged to its lowest level since February. Both indexes are now negative for the year. On Friday morning, stock futures were lower, indicating that stocks may slide again during the session.
And so, Wall Street strategists and stock market bulls like Lee have been fielding questions from clients about what this means for the near-term future of the stock market.
In a note to clients on Friday, Lee wrote (emphasis and link added):
“In our view, the most important element for remaining constructive is the eco-system benefiting from a U.S. housing recovery. July 2015 housing starts rose to 1.206mm, reaching a 7-year high and further confirmation of a broadening housing recovery which should lead to U.S. housing starts rising to 1.7-2.0mm (typical peaks) … U.S. residential construction is 3.3% of GDP but is expected to rise to at least 5.5% (1.7mm starts) and such an increase would more than offset the 40% decline in Energy capex, which has fallen from 1% of GDP to 0.6%. In fact, as we show, starts need to reach 1.374mm to fully offset the 40% decline in Energy spending, which could be seen within 12 months.”
And so, Lee says that although the past few weeks have been the worst of 2015 for the stock market, his call for a longer-term rally, and the 2,325 year-end target on the S&P 500, is unchanged.
On Thursday, we learned that existing home sales rose at the highest annual rate since 2007. According to Lee, housing-related stocks have “potentially 100%-plus upside.”