The S&P 500 might leap 9% by year-end as a reversal in rates of interest drives a rebound within the struggling reflation commerce, Fundstrat’s Tom Lee says | Markets Insider (businessinsider.com)
Matthew Fox Jul. 11, 2021, 08:15 AM
The S&P 500 might surge 9% to 4,700 by year-end, Fundstrat’s Tom Lee informed CNBC on Friday.
Lee sees a renewed surge in rate of interest on the horizon, with the 10-year drifting in direction of 1.75%.
That reversal in rates of interest ought to drive cyclical shares greater, in keeping with Lee.
The inventory market is on observe to proceed its uptrend and surge as a lot as 9% by year-end, Fundstrat’s Tom Lee stated in an interview with CNBC on Friday.
Lee stated the S&P 500 might surge to 4,700 by year-end as “sturdy markets keep sturdy,” representing potential upside of 9% from Thursday’s shut. That transfer greater will seemingly be pushed by cyclical shares as rates of interest drift again in direction of their latest cycle-high of 1.75%.
For the reason that begin of June, the 10-12 months US Treasury fee has fallen to as little as 1.27% as buyers query the sturdiness of the post-pandemic financial restoration and expectations of upper inflation. The drop in charges helped gas a rotation out of worth and into development shares, however in keeping with Lee, charges and development shares might start to rise collectively as they turn into “indifferent” from their usually inverse relationship.
“I feel FAANG goes to detach itself from rates of interest, which means they are going to have an incredible second half, not as a result of charges are going to fall, however as a result of these are nice corporations that just about did nothing in the course of the first half [of 2021]. We expect if the S&P 500 ends the 12 months up 25%, and loads of these FAANGs are up 5%, they may very well be up 20% within the second half, that makes them an chubby,” Lee informed CNBC.
Whereas Lee believes mega-cap tech shares within the “FAANG” group can proceed to carry out effectively, epicenter shares tied to the bodily reopening of the economic system shall be greatest positioned for extra upside.
“Epicenter shares will rally strongly, as they’re essentially the most delicate to rising charges,” Lee stated in a be aware on Friday.
And inside epicenter shares, Lee has essentially the most conviction on the power sector, as bullish divergences between power shares and oil costs proceed into the again half of the 12 months. Lee sees a possible squeeze within the provide of oil occuring simply because the economic system will get again on its ft and demand is excessive, seemingly resulting in a continued uptrend in costs.
“[Oil] Provide will get even tighter into 2022 because the $300 billion in shortfall in capex previous 24 months robs future manufacturing capability,” Lee defined. These potential provide constraints come as OPEC members fail to achieve a deal on an anticipated manufacturing enhance.
“Backside line: If rates of interest reverse, purchase epicenter which is gonna rally most,” Lee concluded.