The stock market could soar as much as 30% next year as expectations grow for the Fed to slash rates and inflation to drop 'like a rock'

The stock market could soar as much as 30% next year as expectations grow for the Fed to slash rates and inflation to drop 'like a rock,' Fundstrat's Tom Lee has said per BI.


According to Tom Lee of Fundstrat, there is a possibility that the S&P 500 could experience a significant surge of up to 30% in the coming year. Lee, known for his consistently bullish outlook on Wall Street, anticipates that a decline in inflation and potential interest rate cuts by the Federal Reserve will contribute to this optimistic scenario.

Lee predicts that the S&P 500 could reach 5,200 by the end of 2024, implying a 9% increase from its current levels. The key factors behind his projections include expected rate cuts by the Fed and a substantial drop in inflation. Lee believes that these factors will create favorable conditions for stocks to rally in 2024.

In an interview with CNBC, Lee highlighted the potential for consumers to realize a slowdown in the rate of price increases, with the prospect of inflation dropping to 2% being a visible possibility next year. Despite stocks already achieving double-digit gains in the previous year, Lee expressed confidence that there is more than a 50% probability of the S&P 500 posting double-digit gains in 2024.

Lee referred to a century-long trend between stocks and Treasury yields, noting that since 1900, stocks have often recorded double-digit returns when the 10-year Treasury yield is in the 3%-4% range. With Treasury yields currently within this range due to expectations of Fed rate cuts, Lee suggested that, assuming stock multiples remain constant, an S&P 500 multiple of 20 would indicate a 30% surge in stocks in the coming year.

In his stock market forecast for 2023, Lee accurately predicted a significant surge in the S&P 500, ending the year around 4,750. The actual year-end value was approximately 4,769, closely aligning with Lee's forecast.