The US economy is entering expansion, not recession, and investors fear they are missing out, Fundstrat's Tom Lee says

• The US economy is entering a phase of expansion, not recession, Fundstrat's Tom Lee said.
• That means this year's stock-market rally, which has so far been led by the tech sector, will become more broad-based, he told CNBC on Monday.

The US is entering economic expansion and not recession, and that means the stock-market rally is set to become more broad-based, Fundstrat's head of research Tom Lee has said.

The economy looks strong against a backdrop of softer commodity prices, businesses restocking inventory and an easing of labor-market tightness, according to Lee - one of the most bullish voices on Wall Street who has repeatedly predicted equities to gain despite other experts warning of a coming recession.

"Instead of a recession unfolding, it looks like the economy is slipping into an expansion - and that's because we don't have a commodity shock....we have businesses that de-stocked starting to restock, and we have things like employment, you know, the tightness kind of cooling off," he told CNBC on Monday.

"I think these are conditions for profits to actually outperform and at a time when investor positioning is so offside it's really been very obvious people have been really cautious and I think they've now turned from being bearish to having a bit of FOMO," he added.

Lee pointed to the strong performance of the S&P 500 share index this year, with the benchmark gauge rising 13% from levels in January largely on the back of US mega-cap tech stocks.

"I don't think stocks are extended. I think the FAANGS did the heavy lifting and I think if we are slipping into an expansion, a lot of other groups are going to participate," Lee said, referring to the five largest US tech companies including Facebook (now Meta Platforms), Amazon, Apple, Netflix and Google.

However, investors understandably have been wary - in large part because the Federal Reserve has a "tough job" of bringing inflation down with its monetary tightening campaign.

"So I think inflation is going to start to look more acceptable to the market and to the Fed and then the question is: is the Fed okay with where stocks are? And I think they are," he added.