Tom Lee, managing partner and head of research at Fundstrat, joined CNBC’s Closing Bell to share insights on the market outlook for 2025, the potential implications of the incoming Trump administration, and other key topics.
Lee began by addressing the market’s expectations following two consecutive years of 20% gains, questioning how much positive news is already reflected in current valuations. He painted an optimistic picture for 2025, citing a supportive environment with a new administration potentially fostering a “pro animal spirits” market, a dovish Federal Reserve, and stabilizing interest rates. He pointed to the substantial $7 trillion in cash sitting on the sidelines and noted improving investor sentiment, stating, “I wouldn’t be too worried about the next 12 months.”
When asked to elaborate on what “pro animal spirits” might entail under the new administration, Lee pointed to the market’s approval of the incoming Treasury Secretary and the historical focus of the Trump presidency on stock market performance, as noted by economist Jeremy Siegel. However, he acknowledged uncertainties, particularly around trade policies and potential tariffs, which could introduce volatility.
Regarding the market’s recent behavior, Lee noted a tilt towards cyclical and financial stocks, suggesting an anticipation of growth acceleration. He addressed concerns about sectors like housing, which have been under pressure due to high interest rates, but foresaw a recovery as rates stabilize, potentially leading the economic recovery in 2025.
On the question of whether the S&P 500 (^GSPC) would be the best vehicle to capitalize on this environment, Lee shared insights from a recent Fundstrat survey. He highlighted a divergence between institutional investors, leaning towards cyclicals, and RIAs (Registered Investment Advisors), who favor tech giants like FAANG. Lee himself expressed a preference for cyclicals and small caps, anticipating a strong performance in these areas in the coming year.
Overall, Lee’s analysis suggests a bullish market setup for 2025, driven by policy shifts, monetary policy, and a reversion in investor sentiment towards sectors expected to benefit from economic recovery. However, he cautioned that market dynamics could shift based on how new policies unfold and their impact on various sectors.
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