TOM LEE: Stocks have gone 'parabolic' and are sending a bullish signal for the rest of the year

  • The stock market has been is in a “parabolic rise,” says Tom Lee, the co-founder of Fundstrat Global Advisors.
  • This is a bullish signal for the rest of the year, he said, which has only failed two out of eight prior times since 1928 when the market moved in a similar fashion.
  • Lee said the best stocks to buy for the year ahead can be found in “ICRAP”: Industrials, Computers (or old tech companies), Resources, American Banks, and Phone/Cable (telecoms).

Less than a month into 2018, strategists at major Wall Street firms including UBS and Bank of America have already raised their year-end stock market forecasts.

Such exemplifies the recent speed of the rally, which has seen the S&P 500 gain 6.7% year-to-date.

“We attribute this parabolic rise to the strengthening confidence (animal spirits) and rotation away from ‘negative rate’ bonds – of which $US20T is still outstanding,” said Tom Lee, the co-founder of Fundstrat Global Advisors, in a note on Friday.

According to Lee, this is a bullish signal for the rest of the year. He noted that previous rallies this big and at similar times were often extended. The S&P 500 has gone nearly 400 days without a 5% drop – the longest streak ever – with the last such drop happening when Britain voted to leave the European Union in June 2014.

Here’s what we’ve seen in recent months:

Screen Shot 2018 01 26 at 10.43.48 AMFundstrat

According to Lee, a “parabolic move” happens when market returns accelerate over those three periods.

“The only 2 years where this ended poorly was 1929 and 1946-but in both instances, it was higher THEN lower.”

Screen Shot 2018 01 26 at 10.52.43 AMFundstrat

To profit from this trend – if it repeats itself – Lee recommended cyclical market sectors, specifically what he called ICRAP: Industrials, Computers (or old tech companies), Resources, American Banks, and Phone/Cable (telecoms).

Some specific stocks he recommends include Lockheed Martin, UPS,Motorola,IBM,LyondellBasell, BlackRock, and Time Warner Inc.

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