"The Wall Street Whiz": U.S. stocks are expected to rebound by the end of the year

One of Wall Street's most bullish forecasters says that the U.S. stock market is set for a difficult two months, but investors may still see a strong rebound by the end of the year.

Fundstrat's head of research, Tom Lee, unusually bearish in the short term, predicts that the next eight weeks could be tough for investors. In a video segment for Fundstrat clients on Monday, he cited the upcoming presidential election-induced volatility and noted that the latest presidential polls show Harris and Trump still neck and neck.

Since the beginning of this month, U.S. stocks have fallen by about 4%. Lee suggests that the stock market could ultimately drop by as much as 7%, with the S&P 500 potentially bottoming out at 5350 points.

However, he added that this should not discourage investors who still expect a strong performance from the stock market.

Lee said, "While these eight weeks will be challenging, I don't think we should overlook the whole year. I think the overall performance of the U.S. stock market for the year will be quite strong," outlining six reasons why he believes the stock market could rise by 10% in the second half of this year:

1. The economy seems poised to avoid a recession

Despite concerns about an economic slowdown, the U.S. economy remains robust, with GDP growing by 3% in the second quarter.

Meanwhile, the job market remained strong in August, with the unemployment rate slightly decreasing to 4.2%.

"The prospect of a soft landing is intact. I don't think we are heading towards a recession," Lee said.

2. High-yield bonds rose last month

Lee pointed out that considering the overall trend of stocks relative to bonds since early September, this is a bullish signal for stocks.

3. More stocks are rising

The number of rising component stocks in the S&P 500 index exceeds the number of falling stocks, and this gap reached a new high in August. Lee stated that this is another bullish signal for the stock market, possibly indicating another market peak is on the horizon.

This was the case in 2007. That year, the ratio of rising to falling component stocks in the S&P 500 index hit a new high in May, just a few months before the overall index reached a new high.

"I don't think we should say that the market has already peaked this year," he added.

4. NVIDIA's sell-off is not an anomaly

Investors have been spooked by the recent sell-off of NVIDIA stock. As a darling of artificial intelligence, the company's stock price plummeted by about 20% from mid-August.

But considering NVIDIA's historical declines, this may not be the market omen some investors think it is. Lee said that last month's sell-off marked NVIDIA's 21st decline of 25%-30% in the past 25 years.

5. The stock market has surged in the first half of the year

So far, U.S. stocks have performed strongly in 2024, with the S&P 500 index rising by 10% in the first half of the year. Lee pointed out that since 1950, when the stock market has risen by 10% or more in the first half of the year, there is an 83% probability of a rise in the second half of the year, with an average increase of 10% "History has shown that we will end this year with strong momentum," he said.

6. Investors may have gone through the toughest period of the election year

The stock market may have bottomed out in this election year, which has historically been a turbulent year for the market.

Lee stated that although market volatility tends to peak in October of an election year, the stock market often hits a low point in August, meaning that investors may have already gone through the most severe period of losses.

"So please keep this in mind. We are in a challenging eight weeks, but I believe the view that the market bottomed out in August remains unchanged," he said.

Lee is one of the Wall Street strategists who was earliest to be bullish on stocks during the peak of the COVID-19 pandemic, and has been accurately predicting the rise of the U.S. stock market throughout last year, gaining fame and earning the nickname "Wall Street Oracle." This year, he has also made some bold short-term decisions, including predicting a shift to small-cap stocks