The stock market will jump 18% in 2023 as this year's crises become next year's opportunities and the economy heads for a soft landing, Fundstrat's Tom Lee says

• The stock market will rally 18% in 2023 as the economy sticks a soft landing, Fundstrat's Tom Lee said.
• Fundstrat's 2023 outlook for the S&P 500 to end the year at 4,750 is the most bullish forecast on Wall Street.
• "US economy [is] remarkably resilient in the face of rapid Fed hike cycle," Lee said.

US stocks are poised to surge 18% next year as the economy is likely to stick a "soft landing," Fundstrat's Tom Lee said in his 2023 outlook.

Lee set a 2023 year-end price target of 4,750 for the S&P 500, representing the most bullish forecast on Wall Street so far. He's bucking the overall strategist trend, as the average forecast for the S&P 500 in 2023 is for slight negative returns. That hasn't happened in over two decades, as Wall Street strategists typically forecasts a 10% gain in the year-ahead.

In a big picture overview, Lee told clients that the headwinds impacting markets in 2022 are now turning into potential tailwinds for 2023. "The 2022 crisis is now shifted into opportunities, creating the highest probabilities >10% returns since 2020," Lee said.

Those factors include inflation, which is starting to show signs of unwinding, and rate hikes from the Federal Reserve, which are likely to come to an end by the start of next year, according to Lee. Meanwhile, the US economy remains incredibly resilient despite the step-up in Fed rate hikes.

"US economy remarkably resilient in the face of rapid Fed hike cycle. The plurality of equity investors expect an inevitable recession as Fed hikes until it breaks something. But if above assessment [falling inflation, end of rate hikes] is correct, a 'soft landing' is the highest probability," Lee said.

Also driving Lee's bullishness is stock market history, which shows that it's incredibly rare for the S&P 500 to print back-to-back negative returns in two years. Since World War II, each instance of a negative gain for the S&P 500 in a calendar year was followed up by a positive annual gain 86% of the time.

And even if corporate earnings fail to grow next year, as many analysts expect, that doesn't mean stocks can't go higher. "There are many instances of double-digit gains taking place in year after with zero or even negative EPS growth. So that is not necessarily the constraint consensus argues it is," Lee said.

Going forward, the stock market's tailwinds in 2023 include a weaker US dollar, supply chains easing, and China re-opening its economy. Therefore, Lee ultimately expects S&P 500 earnings per share to "grow modestly" in 2023 to $250, from an estimated $220 in 2022.

The average Wall Street analyst expects S&P 500 earnings per share to be $215 in 2023, so Lee is undoubtedly bullish, as he was last year when he forecasted the S&P 500 ending 2022 at 5,100. The S&P 500 traded around 4,030 on Wednesday.