Stocks could enter into a strong multi-year rally as hedge funds increase exposure and retail investors start moving money away from the sidelines, according to Fundstrat’s head of research, Tom Lee.
In a new interview with CNBC, Lee said He says Investors had turned cautious during the escalation in tensions with Iran, but sentiment has improved since then as downside geopolitical risks appear to have become more contained.
“I think investors became very cautious in the escalation of the war. Many stocks held by retail companies, especially software stocks, were hurt, and the MAG 7 index was declining. Investors saw the beginning of the war as a good time to take risks off the table, which was very different from what we saw a year ago when investors were buying into terror flows.”
Now I believe the downside risks that followed the war have been removed. Hedge funds were early on and are increasing risk, and we can confirm that by talking to our clients. I think now it’s the retail investors who are starting to pull money off the margin and buy stocks.
Lee says improving earnings estimates and the relative strength of the US economy could continue to attract global capital into stocks.
“I still overweight the US because if you think about where innovation comes from, whether it’s technology, healthcare, financial services or fintech, that’s really US companies. There was an argument the US P/E ratio should go down, but the war revealed that the US multiple should go up.”
I think this is still going to be a very difficult year because we have a new Fed Chairman coming in, but once we get through that, the next 18 to 24 months could be one of the best we’ve ever had.
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