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The stock could soar as much as 30% this year, said Fundstrat's Tom Lee.
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Lee predicted that the S&P 500 would reach 5,200 points, implying a 9% increase from the index's current levels.
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But in reality there is a 50% chance that the index will exceed that figure, thanks to this century-long trend.
According to Fundstrat's Tom Lee, the S&P 500 is likely to rise as much as 30% next year, on expectations that inflation will continue to fall and the Federal Reserve will eventually cut interest rates.
Lee, who has made a name for himself as one of the most Consistently bullish strategists on Wall Streetpredicted that the S&P 500 would rise to 5,200 by the end of 2024, implying a 9% increase from the benchmark's current levels.
Lee's predictions are mainly based on expected rate cuts by the Federal Reserve and Inflation falls "like a rock", as I had previously predicted. These factors should give the stock the runway to soar in 2024.
"Consumers will notice that the pace of price increases is slowing," Lee said in an interview with CNBC last week, adding that a drop in inflation to 2% would be a "very visible" possibility next year.
"Double-digit is a better than 50% chance," Lee said of the S&P 500's gains in 2024, even considering the stock already posted double-digit gains last year.
In reality, the index has more than a 50-50 chance of posting those double-digit gains, he said, pointing to a century-old trend between stocks and Treasury yields.
Since 1900, stocks are likely to earn double-digit returns when the 10-year Treasury yield hovers between 3% and 4%, Lee said.
65% of the time Treasury yields have traded within this range, the S&P 500 posted a price-to-earnings multiple of more than 18. And 50% of the time, the price-to-earnings ratio was more than 20, Lee said. .
Treasury yields have fallen within this golden range in recent weeks, as investors raised their expectations of rate cuts from the Federal Reserve. And while Lee's 5,200 price target assumes multiples for the stock remain the same, a 20 multiple for the S&P 500 would imply a 30% rise in the stock this year, he said, assuming corporate profits grow by about 10 %.
Lee was accurate in his stock market forecast in 2023, after having predicted that the S&P 500 would soar more than 20% to end the year around 4,750. The benchmark stock index ended the year around 4,769, less than 1% of Lee's target.
Read the original article at Business Insider
