The S&P 500 could soar nearly 400% by 2038 as millennials drive the US economy to new heights, Fundstrat's Tom Lee says

• The S&P 500 could surge 362% to 19,350 by 2038, Fundstrat's Tom Lee said in a Friday note.
• Lee said that millennials are poised to become the most important driver of the US economy over the next two decades.
• "Millennials are going to be a major incremental and additive driver to US economic growth, and better growth equals better equity returns," Lee said.
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"Demographics are destiny," according to Fundstrat's Tom Lee, who believes stock market returns will be strong for the next two decades as millennials drive the US economy to new heights.

In a Friday note, Lee outlined his case for the S&P 500 to trade as high as 19,350 by 2038, representing potential upside of 362% from Thursday's close.

The basis for the long-term forecast is predicated on the strong expected demand for homes and vehicles from millennials as America's largest generation begins to form families and enter their peak earnings years. Lee believes housing starts could surge to more than 2.5 million per year over the next decade, which has a strong multiplier effect on the broader economy. Annual housing starts have not reached 2.5 million since the 1970s.

"Millennials are going to be a major incremental and additive driver to US economic growth, and better growth equals better equity returns," Lee explained.

Lee outlined four reasons why he recommends investors stay overweight equities, according to the note. Those reasons include the Fed remaining dovish, institutional investor cash on the sidelines hitting $3.2 trillion (which could ultimately flow into the market), a global economy emerging from "depression," and millennials entering their prime years.

"This is why we are structurally bullish," Lee said.

Lee went on to explain that since 1900, every single peak in the stock market has coincided with the peak of every single generation. "Coincidence? Maybe," Lee said, but added that the equity peaks could be explained by the "consumption power" peak of every generation.

With the prime age (30 to 50) of the millennial generation not expected to peak until 2038, the stock market should have a long runway of future growth, according to the note.

"Bull market until 2038? This is a possible base case... If demographics are destiny, US stocks will do very well," Lee concluded.