2 big reasons why the market is poised for a massive rally this week, according to Fundstrat’s Tom Lee

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A potential “face rip” rally will be driven by the last trading day of March, Tom Lee said.

  • An explosive rally in the stock market could transpire over the next two days, according to Fundstrat’s Tom Lee.
  • Window dressing on the last day of the month by fund managers favors buying pressure in some of the most popular stocks, Lee said.
  • And the start of April on Thursday will likely be marked by inflows into equities as one of the strongest months of the year for the stock market begins.
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The stock market is poised for a massive rally over the next two days as window dressing and strong seasonality begins to kick in, according to a Tuesday note from Fundstrat’s Tom Lee.

The potential “face rip” rally will first be driven by the last trading day of the month on Wednesday, in which fund managers participate in “window dressing,” Lee said. The practice of window dressing occurs when funds sell their losing stocks and buy the winning stocks to improve the image of their quarter-end holdings.

And on Thursday, strong seasonality should kick in as it’s the first trading day of April. Stocks typically see inflows on the first trading day of the month, according to Lee, and systematic funds want to be long stocks in April because it is on average one of the strongest months of the year for markets.

According to LPL Financial’s Chief Market Strategist Ryan Detrick, gains for stocks in April have been consistent, as “stocks have closed higher in April an incredible 14 out of the past 15 years.”

“We are literally facing a turning point, due to the above named factors, and add to the performance anxiety created by the past few weeks, and it is a set-up for a big chase higher,” Lee explained.

That performance anxiety refers to the $20 billion liquidation of Archegos Capital and the subsequent volatility that roiled a handful of stocks. Investors braced for more pain related to the unwinding of Bill Hwang’s family office, but the market has since shrugged off the event and investors that expected more volatility are likely ready to step in and buy stocks.

“I think this chase starts Wednesday [morning],” Lee concluded.

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Tech stocks’ market leadership may be over and investors aren’t ‘bullish enough about the reopening’, says Fundstrat’s Tom Lee

Tom Lee
Thomas Lee Managing Director and Head of Research at Fundstrat

  • Fundstrat’s Tom Lee says tech stock’s market leadership is fading as energy, financials, and cyclicals takeover.
  • The Head of Research at Fundstrat argued investors aren’t “bullish enough about the reopening.”
  • Lee sees the reopening of the US economy post-pandemic as akin to a “post-war reconstruction period with government stimulus.”
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Tech stocks’ market leadership may be fading and investors aren’t “bullish enough about the reopening,” according to Fundstrat’s Tom Lee.

Lee made an appearance on CNBC’s “Fast Money” on Wednesday. In the interview, he said he sees tech stocks’ market leadership fading as the post-pandemic reopening gets underway.

“I think tech’s leadership, which was so astounding for the past decade, I think we’re seeing a new leadership emerge,” Lee said.

The managing partner and head of research at Fundstrat Global Advisors argued energy, financials, and cyclicals are leading the way now. And according to Lee, that means “a vigorous economic recovery is underway.”

Lee argued that the leadership of cyclicals will hurt tech and growth focused stocks going forward as well.

“These cyclicals could turn into growth stocks which means traditional growth stocks aren’t as shiny and interesting,” he said.

Lee also expects a faster reopening than other observers, arguing “people aren’t bullish enough about the reopening,” although he noted that “nobody can say COVID has been vanquished.”

Lee said although his reopening bullishness might be looked at as a “contrarian view” he sees the current era as a type of “post-war reconstruction period with government stimulus.”

He added that is “extremely boomy for real investment spending which is the biggest multiplier to GDP.”

Lee isn’t alone in the crowded reopening trade, but his somewhat bearish view on tech stocks is a shift from the norm. Lee has been a fan of tech stocks, and in particular Big Tech, for some time.

The head of research at Fundstrat even called big tech companies “unkillable businesses” in an interview in June of last year. For now though, Lee recommends avoiding the names.

His view isn’t shared by all, though. 

Analyst Dan Ives from Wedbush Securities said in a note to clients on Wednesday that he believes “tech stocks have another 25%+ upward move in the cards over the coming year led by FAANG, cloud, and cybersecurity names despite this risk-off moment on the Street.”

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Fundstrat’s Tom Lee says another epic rally in stocks hit hardest by COVID-19 could be coming soon

Hilton Hotel
  • Fundstrat’s Tom Lee said stocks in sectors hit hardest by the pandemic like travel and retail may be due for a rally. 
  • The head of research explained that the third wave of COVID-19 cases may be peaking in the US. When this happened after the second wave, epicenter stocks rallied shortly after, he said.
  • “From a market’s perspective, a rolling over of COVID-19 should be a “risk-on” signal for epicenter stocks,” said Lee. “The reason, naturally, is that epicenter stocks are more sensitive to lockdowns and benefit from economic re-opening.
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History shows that another rally for stocks hit hardest by the pandemic could be on the way. 

That’s according to Fundstrat’s Tom Lee, who wrote in a note to clients on Monday that “epicenter stocks,” or stocks in sectors like travel, retail, and services, could be poised to gain in the near future. 

The head of research explained that the third wave of COVID-19 cases may be peaking in the US. When this happened after the second wave, epicenter stocks rallied shortly after, he said. 

“From a market’s perspective, a rolling over of COVID-19 should be a “risk-on” signal for epicenter stocks,” said Lee. “The reason, naturally, is that epicenter stocks are more sensitive to lockdowns and benefit from economic re-opening. Hence, we should expect the epicenter stocks to rally.”

Read more:RBC unveils its 15 top biotech stock ideas for 2021 as the sector is poised to take off on the back of pandemic-related innovations and new funding

Lee said that the percentage of the US with declines in COVID-19 cases is at 62%. That’s the highest level since August. He also noted a recent comment from former FDA commissioner Dr. Scot Gottlieb, who said on Sunday that COVID-19 cases may be peaking nationally. This thinning out of cases could be a good sign for stocks that hinge on an economic reopening. 

Although this could be a temporary rollover of cases, and holiday gatherings could cause a spike in cases, Lee said COVID-19 is still rolling over earlier than he expected.  

Names in his basket of epicenter stocks include travel companies like MGM Resorts, Hilton Worldwide, Marriott, Norwegian Cruise Line, and Royal Caribbean, retailers including AutoNation, Harley-Davidson, Hasbro, L Brands, and Best Buy, and restaurants like Darden Restaurants and Starbucks.

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The S&P 500 will surge 16% in 2021 as pent-up demand leads to strong GDP recovery, Fundstrat’s Tom Lee says

Tom Lee
  • US stocks are set to continue their bull run in 2021 as pent-up demand due to the COVID-19 pandemic leads to a stronger-than-expected recovery in GDP, according to Fundstrat.
  • In its 2021 outlook released on Thursday, Fundstrat’s Tom Lee outlined how the S&P 500 could surge 16% to 4,300 by the end of next year.
  • Besides a surge in demand from consumers that could be sparked by a “pandemic finale,” declining volatility and low interest rates are also supportive of the stock market, Lee said.
  • Detailed below is Fundstrat’s roadmap for the stock market in 2021, which includes an expected first quarter sell-off of at least 10%.
  • Visit Business Insider’s homepage for more stories.

Investors should get used to a rising stock market in 2021 as pent-up demand helps drive a better-than-expected recovery in the economy, according to Fundstrat’s Tom Lee.

In its 2021 outlook note released on Thursday, Fundstrat outlined a roadmap for the stock market in 2021 that includes a 16% surge in the S&P 500 to 4,300 by year-end.

“Pent-up demand and massive ‘relief’ and celebration of pandemic finale could lead to a substantially stronger than expected GDP recovery,” Lee said.

That latent consumer demand that’s stemmed from the COVID-19 pandemic shouldn’t come as a surprise given that China has staged a strong economic rebound after they got the virus under control, he added.

Read more: JPMorgan says stocks are primed for sustained gains in a way they haven’t been in years – and identifies 43 names to buy for above-average earnings growth in 2021

Also supportive of equities in 2021 will be continued low interest rates and a continued decline in volatility.

Fundstrat said expected real interest rates of negative 6% in 2021 and 2022 will represent the lowest level in more than 60 years. Real interest rates are derived from the nominal interest rate adjusted for the expected inflation rate.

Those low rates are a “massive tailwind” for asset heavy companies and could lead to strong outperformance of cyclical stocks over growth stocks, according to Fundstrat. 

But the S&P 500’s path to 4,300 won’t be a straight line higher. Instead, according to Lee, investors should expect a 10% correction sometime between February and April that drives the S&P 500 to the 3,500 level. 

“Equities need to work off overbought conditions before mid-year,” Lee said, pointing to heightened relative-strength-index levels and a sharp increase in bullish investor sentiment.

Read more: Buy these 26 stocks poised to surge as China starts to dominate the electric-vehicle landscape, UBS says

A 10% correction is in line with the first 12 to 18 months of price action in past bull markets across history, according to Lee. 

In terms of which stocks to own for 2021, Lee highlights companies within the consumer discretionary, industrial, and energy sectors.

And if we are indeed at the start of a new bull market for stocks that mirrors the prior bull market runs of 1982 or 2009, the S&P 500 could hit 10,000 by 2030, according to Fundstrat. That would represent a compounded annual growth rate of just under 15%.

Millennials will likely drive that move higher in both the stock market and the economy as that generation is only now beginning to buy homes, which represents a sizable driver of business in the US. 

“If this is a new bull-market, then stocks should have a very impressive decade of total return,” Lee said.

Read more: Fund manager Brian Barish has returned more than 550% to investors over 2 decades, and he just had 2 of his best years ever. He told us how he did it – and 3 top picks for the next 5 years.

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