Tom Lee, Fundstrat Global Advisors‘ head of research, joined CNBC’s ‘Squawk Box’ for a discussion on market trends and outlooks, especially focusing on expectations for 2025. As the market showed significant declines following a turbulent period, Lee noted that the recent market behavior since December 18th has been influenced by concerns over the FOMC’s rate decisions, suggesting that investors were worried the Fed might not be as dovish as anticipated. Despite this, he emphasized that the fundamental economic indicators remain strong, describing the current market dip more as profit-taking and a reflection of hesitancy around Federal Reserve actions rather than a fundamental shift in market direction.
Lee reassured that these dips have historically been buying opportunities in 2024, suggesting that the weakness seen in December, while disappointing, does not alter the positive outlook for 2025. He predicted that even if the S&P 500 ends the year around 5,900, the setup for the next year remains promising due to several tailwinds.
Looking forward to 2025, Lee highlighted the importance of monitoring CEO confidence, which has been cautious but is expected to recover, signaling a return to an expansionary business mindset. He pointed out that the ISM manufacturing index, which has been below 50 since October 2022, correlates with S&P earnings growth and anticipates an uptick. Additionally, an incoming administration perceived as pro-business by the markets could reignite business optimism. Lee also believes the Federal Reserve will remain dovish, supportive of market growth despite their ongoing search for a neutral rate.
For the first half of 2025, Lee sees significant potential for the S&P 500, suggesting it could approach 7,000, driven by these positive factors. Addressing concerns about inflation, Lee argued that fears of a resurgence are misplaced. He pointed out that current inflation drivers like wages and shelter costs are not as concerning as perceived, with wage growth not being inflationary according to the Fed, and shelter costs merely catching up with market prices. He also mentioned that distortions like auto insurance rates have cooled, reducing the likelihood of a new wave of inflation unless there’s an unforeseen supply shock.
Overall, Lee’s analysis on CNBC suggested a cautious optimism for immediate market conditions but a strong belief in a robust market performance as we move into the first half of 2025, underpinned by improving economic fundamentals and policy environments.
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