- According to Fundstrat’s Tom Lee, there’s about a 90% chance that the stock market has already bottomed in 2022.
- Lee believes as long as the economy avoids a recession, the S&P 500 could climb to 5,100 in 2022.
- “This rebound in stocks is closing up [the] The 200-day moving average is generating quite a lot of positive signals,” Lee said.
There is about a 90% chance that the stock market bottomed in 2022 on February 24, when Vladimir Putin launched the Russian attack on Ukraine.
That’s according to a Friday note from Fundstrat’s Tom Lee, who argues that the S&P 500 could climb to 5,100 by the end of the year as long as the US economy avoids a recession this year. That translates to a potential upside of 13% from current levels, or a 24% gain for each investor who bought on Feb. 24 at the low of 4,114.
“We believe the lows for 2022 are >88% likely, [but] We still see stocks in a jagged recovery in 1H2022. Full risk coming in 2H2022, [where the] The S&P 500 may surpass 5,100 before year-end,” Lee said.
Key to his bullish view is the resilience of the US stock market despite ongoing macroeconomic headwinds. These include rising inflation, ongoing supply chain issues, geopolitical tensions, rising interest rates and an inverted yield curve.
Despite the negative headlines, the S&P 500 is down only about 5% year-to-date after falling as much as 12% earlier this month, and its recent rally off the lows has decisively broken the 200-day moving average. This is a bullish signal for the stock market, according to Lee, who pointed to historical market data showing strong forward returns on similar events in the past.
Since World War II, there have been 31 “key reversals” in which the S&P 500 fell more than 6% below its 200-day moving average and then closed again above the lagging technical indicator.
Of the 15 times the US hasn’t been in one
At the time of the signal, the S&P 500 was 14 times higher, as it is six months later today, with a median return of 10%. The S&P 500 was 100% higher 12 months later, with a median return of 17%. The last time this signal flashed was in May 2020 and March 2016, two periods that proved to be solid buying opportunities.
And even when a recession was already underway, the S&P 500 produced a median 12-month return of 18% with a 69% win ratio, according to Fundstrat analysis.
“So this rebound in stocks is closing up [the] The 200-day moving average is generating quite a lot of positive signals,” Lee said.
While stock market gains are likely through year-end, the S&P 500 can still fall from current levels along the way. “Over there is a ‘zone of rocks’ [the] next three to four months, but the trajectory over the next 6 and 12 months is positive,” Lee said.
To take advantage of the potential upside, Lee continues to recommend investors stay with US stocks, which are “the best house in a bad neighborhood.”
“The US still has the best companies and is the most liquid market,” he said, adding that Latin American countries are also showing solid performances thanks to their commodity-friendly bias.