JPMORGAN'S TOM LEE: Here Are The 3 Reasons Why I Think Stocks Will Soar Into The End Of The Year
Lee has a year-end S&P 500 price target of 1775. Today, the index is trading around 1690, so Lee's forecast implies an additional 5% upside for stocks over the next three months.
In his latest note to clients today, Lee gives three reasons why he thinks that is likely:
- Foremost, the recent move to all-time highs is quite constructive for the S&P 500. In fact, as shown in Figure 5, there have been only three prior instances when the S&P 500 sustainably surpassed multi-decade highs: (i) 1958 (taking out the 1929 highs); (ii) 1982 (taking out the 1973 highs); and (iii) 1991 (taking out the 1987 highs). In all 3 prior cases, the equity markets continued to advance for 5-15 years and increase another 136%- 314%. This is consistent with our baseline view that we are in a secular bull market and expect markets to rise for several more years.
- Second, valuations are still supportive for equities. While the median P/E of the S&P 500 today is 16.2x on NTM EPS, this cannot be looked at in isolation ... 10,438 companies have a P/E below the comparative investment grade P/E (the inverse of the yield-to-worst). At the 2000 and 2007 market highs, only 201 and 274 companies, respectively, had a P/E below that of IG bonds.
- Third, cyclical stocks are demonstrating leadership. They have outperformed the S&P 500 by 100bp from the August low to the Sept 18th high and a further 40bp since the market pulled back 1.4% from the highs (see Figure 11 and Figure 12). Moreover, economic momentum is continuing to improve, as evidenced by the synchronized gains in the economic momentum indices for the US, Eurozone, and emerging markets (see Figure 13). This suggests a very constructive structure to the market - leadership by Cyclicals even in pullbacks. Does this sound like a market worried about new highs or even a government shutdown?