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

Trader
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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The post-pandemic economy will see a new class of growth stocks emerge, Fundstrat’s Tom Lee says

Thanksgiving airport coronavirus
Travelers wearing protective face masks walking through Concourse D at the Miami International Airport on Sunday, November 22, 2020 in Miami, Florida.


As the economy climbs out of the pandemic, a new class of stocks could emerge as investors’ go-to for growth: cyclical stocks.

That’s according to Tom Lee, who is anticipating that after a year where growth was dominated by technology and stay-at-home plays, stocks that hinge on an economic recovery have the most upside in 2021.

The Fundstrat head of research said that in 2021, Americans will shift away from their “digital life” and back to an “analog life.” While the COVID-19 pandemic was similar to a wartime economy, 2021 will be a post-war period, with a focus on rebuilding, and the stimulus bill approved by the House on Wednesday will further solidify these changes, Lee said.

Businesses will reopen, US households will receive substantial relief from the incoming stimulus package, and infrastructure spending will increase.

All of these changes will likely change the “psychology of investors,” Lee explained. If theme parks are booming, no one will want to buy Netflix, and if people are taking their first trip in a year, they won’t be thinking about buying Zoom.

In the post-pandemic economy, cyclical stocks, those that gain when the economy expands, will be the new “growth stocks.”

“After any war, cyclical companies become growth companies as economies are rebuilt. This is why cyclicals, in our view, are taking leadership,” said Lee.

Lee introduced a “Power Epicenter Trifecta” list to identify the cyclical stocks with the strongest price appreciation potential.

Some names on the list include travel stocks Norwegian Cruise Lines and Royal Caribbean, Delta Airlines, energy stocks like Exxon Mobil and Schlumberger, and even office REITs Boston Properties Inc and Highwoods Properties Inc.

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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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