- There are five reasons the stock rally will broaden out to more names this year, Tom Lee said.
- Lee had the most accurate stock market outlook for 2023, accurately forecasting a big year of gains.
- A dovish Fed, a loosening housing market, and improving equity inflows will push more stocks to rally.
Markets entering 2024 are facing a pretty different setup than they did going into last year, and that’s a key that will unlock a rally in a lot more stocks throughout the market, Fundstrat’s Tom Lee said.
“We think one of the more important changes to markets in 2024 is expanding market breadth — that is, more stocks will participate,” Lee wrote in a note on Wednesday.
Lee was among the few Wall Street bulls going into last year, and ended up with the most accurate stock market outlook for 2023.
Beyond the band of roaring Magnificent Seven tech stocks, Lee says there are five reasons he sees more stocks participating in a market rally in 2024, with key trends moving in the opposite direction as last year.
First is the Fed’s policy posture. Unlike last year, the central bank’s stance is markedly more dovish. In the 2022-2023 cycle, the Fed hiked interest rates 11 times, from near-zero to a range of 5.25%-5.5%. Now, officials have signaled a pivot toward cutting rates down (although the exact timing is a heated debate).
Then there’s interest rates, or the yields on the 10-year Treasury note, which are ticking lower instead of climbing up like they were going into 2023.
The housing market is also loosening, with more inventory and tumbling mortgage rates unlocking more homes for sale. After punching through 8% in October, rates the 30-year fixed mortgage have slipped to 6.6%, and could dip below 6% this year.
The outlook for capital expenditures, which is the money companies are spending on their businesses, is also looking sunnier, Lee noted, which bodes well for stocks.
And finally, reversing the stock outflows between October 2022 to December 2023 (investors pulled out a total of $240 billion), Lee said about $5.5 trillion in money market funds will make its way back into equities as the Fed signals rate cuts.
“Besides, the fact that we achieved all-time highs itself is a milestone,” Lee wrote, citing the S&P 500’s record close last week. “As we highlighted recently, making an all-time high shatters the bear thesis. There is no bear market that saw stocks make all-time highs. And in fact, 10 of 11 times stocks made further gains next 6 months.”