“①The Federal Reserve announced a 50 basis point rate cut in September, lowering the federal funds target range from 5.25% to 5.5% to 4.75% to 5%; ②Tom Lee said that although the Fed's rate cut is bullish for the stock market, caution should be maintained before the official election in November.
On September 20th, Caixin reported that Tom Lee, co-founder and head of research at Fundstrat Global Advisors, a US investment institution, issued a recent warning that although the large interest rate cut by the Federal Reserve on Wednesday is bullish for US stocks, caution should continue to be exercised before the official election in November.
In an interview on Thursday, he said, "I believe that the Fed's rate cut cycle has laid a solid foundation for the market for the next month or three months."
"However, from now until the election day, I think there is still a lot of uncertainty in the stock market. That's why I am hesitant about whether investors should invest," he said.
In fact, a few days before the Fed's policy meeting, Lee had mentioned that the rate cut would lead to several weeks of gains in the US stock market as the market believed that the Fed would further cut interest rates and the economy could experience a soft landing. However, he also pointed out that there might be volatility before the election, but it would calm down afterwards and welcome a strong year.
As expected, after the Federal Reserve's 50 basis point rate cut, the US stock market started to "celebrate" on Thursday: all three major indices closed higher, with the S&P 500 index and the Dow Jones index hitting new all-time highs. According to Evercore ISI data, in non-recession periods, the S&P 500 index has averaged a 14% increase in the six months following an interest rate cut.
Lee was one of the few bulls on Wall Street last year. At the end of 2022, he predicted that the S&P 500 index would soar by over 20% to 4,750 points in 2023. As it turned out, the index unexpectedly surged last year, falling just over 30 points short of his target. According to reports, among the strategists tracked by Bloomberg, Lee's predictions were the closest, earning him the nickname "Street Wizard".
Furthermore, his optimistic expectations for the US stock market in 2024 were largely correct, as the S&P 500 index has risen 20.47% year-to-date. In the long term, Lee is very bullish on the US stock market, and he predicts that the S&P 500 index could double and reach 15,000 points by 2030.
Not only Lee, but other analysts also believe that the presidential election will trigger market volatility.
Liz Young Thomas of the U.S. online personal finance company SoFi said earlier this month that this kind of volatility usually peaks in mid-October before the November election, and once the election results are announced, the stock market will rebound and ease.
Due to the upcoming election-related volatility, Lee recommends investing in cyclical stocks such as industrial, financial, and small-cap stocks. Small-cap stocks, in particular, will benefit from rate cuts and the "cyclical economic boost" mentioned by Lee, which will result in reduced consumer costs for mortgages, car loans, and credit cards.
"All of these are favorable factors for small-cap stocks," he said.
Editor/Emily