Tom Lee, managing partner at Fundstrat Global Advisors, appeared on CNBC’s ‘Closing Bell’ to discuss the current state of the markets and his outlook for 2025. Reflecting on the market’s recent volatility, Lee noted that the last few weeks of 2024 and the beginning of 2025 saw the market grappling with digesting significant moves in long-term yields, especially in China, alongside general profit-taking and a cautious ‘wait and see’ approach due to the economic events of the past few days.
Despite these challenges, Lee remains optimistic, predicting the S&P 500 (^GSPC) could reach 7,000 by mid-2025, suggesting a 35% annualized pace of gains. He argues that the strength observed throughout 2024 hasn’t vanished with the turn of the year. Key to his bullish outlook is the dovish stance of the Federal Reserve, which, although making fewer rate cuts, still supports a risk-on market environment. Lee also pointed to the recovery in manufacturing, with the ISM manufacturing index registering one of its highest readings in nearly two and a half years, and a potentially softening labor market, which might prompt the Fed to focus on supporting economic growth.
Regarding market leadership, Lee expects the dominance of mega-cap growth stocks, like those in the “Mag 7” including Nvidia (NVDA), to continue due to their earnings visibility. However, he anticipates a broadening of market participation as financial conditions ease, potentially benefiting sectors like financials, regional banks, industrials, and small caps. This broadening could be spurred by improving economic conditions and lower interest rates, fostering a more inclusive growth environment.
On the topic of risk appetite, Lee highlighted Bitcoin’s performance as a barometer. Despite some outflows from Bitcoin ETFs like BlackRock’s, which he attributes possibly to tax optimization strategies rather than a shift in investor sentiment, Bitcoin’s near-record levels suggest continued investor confidence in riskier assets.
Lee’s analysis suggests that while the market has faced some turbulence, the foundational elements supporting last year’s gains remain intact. He advises investors to approach any market dips as buying opportunities, anticipating that the same themes of growth, particularly in technology and now extending to other sectors, will drive market performance in 2025. His insights underscore a market poised for growth, albeit with an awareness of the need to navigate through short-term volatility and economic indicators that could shape investor strategies in the coming months.
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