One of Wall Street's biggest bulls sees the S&P 500 (^GSPC) surging more than 13% over the next year.
Fundstrat's head of research Tom Lee projects the benchmark index will end 2024 at 5,200 as falling inflation leads to easing financial conditions and the US economy once again skirts recession.
Lee's target is the highest among strategists tracked by Yahoo Finance, surpassing both Deutsche Bank and BMO Capital Markets' call for 5,100 for the S&P at the end of next year.
Lee had a 4,750 call on the S&P going into this year, which he described as a higher-than-consensus prediction largely because he felt inflation would fall more than others and the US economy wouldn't slip into recession. With markets now cheering soft inflation prints and signs the economy is still growing, Lee thinks a similar narrative plays out in 2024.
"2023 was a year where the [stock market] technicians got it right ... And economists got it wrong" Lee said at a 2024 outlook roundtable on Thursday. "In 2024, I think that this is actually still a residual game plan ... the technicians will get the year right and the economists are gonna get the year wrong."
Market breadth is a key component to Lee's thesis as some of his top sector picks include small caps, Financials (XLF) and real estate (XLRE), both of which lagged the market throughout most of the 2023 rally.
Last year, Lee's big call was on tech. He remains overweight on the sector this year and isn't giving up on the Magnificent Seven despite a massive surge in 2023, noting they're likely to outperform the broader market.
But key to Lee's call is that he thinks small caps and financials are positioned to do even better than the Magnificent Seven as interest rates decline amid rate cuts from the Federal Reserve. Small caps, which have more short-term debt than other companies, could benefit from the cost of capital coming down while financials and real estate would also benefit from rate cuts with mortgage rates likely falling in sympathy.
"When it comes to positioning, no one owns financials ... No one's really long, small caps. You know, there's a lot of upside."
One key risk to his thesis is if the US economy slips into recession — but even that might not hold back stocks next year, he says.
"That's not a thesis killer, because that means the Feds gonna cut more," Lee said. "So you shouldn't be that fearful."
Josh Schafer is a reporter for Yahoo Finance.
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