Fundstrat’s Tom Lee: Don’t sell in May and go away

The S&P 500 (SPY), Nasdaq 100 (QQQ), and Dow Jones (DIA) indices continued rising on Monday, continuing the trend started last week. The three indices spiked by more than 0.25% while the US dollar index (DXY) fell to $104.3.

Tom Lee is optimistic about stocks

Tom Lee, the founder of Fundstrat, believes that US stocks and Bitcoin have more upside going forward. He sees Bitcoin price surging from the current $65,000 to over $150,000 by the end of the year.

Lee’s bull thesis is based on the weakness of the US economy, strong corporate earnings, and moderating inflation. As a result, he believes that the Fed will start cutting rates later this year.

Tom Lee believes that US inflation is moderating. While recent Consumer Price Index (CPI) and the Personal Consumption Expenditure (PCE) have been higher than estimates, he believes that their driving factors are starting to moderate. He expects that housing and insurance inflation will start to fall in the coming months.

Dow Jones vs S&P 500 vs Nasdaq 100 vs Bitcoin

US economy is moderating

Economic numbers released last week revealed that the US economy is moderating. The manufacturing and services PMIs dropped below 50 in April, signaling that output is shrinking. 

The US nonfarm payrolls (NFP) numbers also missed analysts estimates. It added 175k jobs in April while the unemployment rate rose to 3.9%. Wage growth has also decelerated in the past two months.

Tom Lee believes that the Fed is not happy with the current interest rates, which stand at between 5.25% and 5.50%. For one, these rates are leading to challenges in the banking industry. Just recently, a bank called Republic First collapsed.

Tom Lee also noted that earnings growth is still continuing. Data by FactSet shows that 80% of all companies in the S&P 500 index have published their financial results. Their blended earnings growth stands at 5%, the highest YoY growth metric since Q2’22. 

Therefore, Tom Lee, who has a good reputation for his stocks and cryptocurrency picks, believes that sticks have more upside in the coming months. Keep in mind that money market funds have over $6 trillion in assets, which will likely rotate to stocks when the Fed starts to cut rates.Still, the biggest risk that Tom Lee sees is the US fiscal situation, which I have written before here. Like Warren Buffett, he believes that spending is getting out of hand, which will put the US at risk.