Here’s why Wall Street’s biggest bull thinks the stock market is headed to record highs this year

• Fundstrat’s Tom Lee is growing even more bullish on the stock market amid this year’s 16% rally in the S&P 500.

• Lee boosted the index’s year-end price target to 4,825 from 4,750, which would mark new record highs, if reached.

• “We’ve seen a massive drop in inflation, and…the inflation war is the Fed’s war and it seems to be won,” Lee told me.

The biggest rally on Wall Street has become even more bullish on the stock market after the first half of the year delivered stunning gains for investors, with Standard & Poor’s 500 An increase of about 16% while Nasdaq 100 rose 39%.

Fundstrat’s Tom raised me Target price for the S&P 500 by the end of the year to 4,825 from 4,750 in a note on Monday, which would represent a potential gain of 8% from current levels and new record highs for the stock market, if reached.

His confidence in his bull market call is derived from the continuing decline in inflation, Which should give the Federal Reserve more breathing room in monetary policy decisions, as well as stock market valuations that are “not too demanding” and Potential productivity boom thanks to artificial intelligence.

“We’ve seen a massive drop in inflation, and as we’ve argued for most of 2022, the inflation war is one the Fed is waging and apparently winning,” he said, adding that he expects headline inflation to drop toward 3% by the end. of the year.

If the consensus forecast on Wall Street becomes more pessimistic in line with this view, stock prices could jump. Investors begin to allocate $5.5 trillion of cash into stocks, according to me.

He also notes that the forward price-to-earnings ratio for the S&P 500, excluding big tech stocks, was 15.7 times at the start of the year and now stands at 16.4 times, which is “barely” higher. Lee said he expects the valuation multiple to continue expanding in the stock market as corporate earnings growth is reflected positively.

“We believe that price/earnings should expand as companies are seen to be flexible and we are at the beginning of a new earnings per share cycle,” he said.

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Also helping to drive that earnings growth, as well as the continued rally in the stock market the advent of artificial intelligence, which Lee has referred to as a potential “super cycle”. Similar to the advent of the PC in the 80s, the Internet in the 90s, and cloud computing in the 2010s.

“AI can be the beginning of a super cycle,” he told me, referring to a recent presentation by Quato Capital. “And Nvidia’s first quarter results were an “aha” moment. The timing makes sense. Artificial intelligence also solves the problem of inflation. By the way, doesn’t this justify the increase in FAANG? Not as a bubble but as a sign of the onset of this cycle.”

Lee remains by far the most bullish market strategist this year. The average year-end price target for the S&P 500 is just $4,091, according to Bloomberg data. The most bullish market strategist after Lee is BMO’s Brian Belski, who has a 4,550 year-end price target for the S&P 500.

Read the original article at Business interested