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Tom Lee has long predicted a rally in the stock market after the Federal Reserve cuts interest rates.
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But after Wednesday’s big 50 basis point rate cut, Lee expects uncertainty to emerge in the run-up to the election.
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Other analysts have also warned of volatility ahead of the November elections.
Tom Lee, a leading stock market optimist, has long predicted a major rally after the Federal Reserve cuts interest rates.
But after a big 50 basis point rate cut on Wednesday, Lee says he is cautious ahead of the November elections.
“I think this rate cut by the Fed sets the conditions for strong market action over the next month or the next three months,” Lee, co-founder and head of research at Fundstrat Global Advisors, told CNBC in an interview Thursday.
“But what stocks do between now and, say, election day, I think is still very uncertain. And that’s why I’m a little hesitant for investors to jump in,” he added.
In the run-up to the Fed’s policy meeting, Lee said a rate cut would set stocks up for a multi-week rally, a sentiment buoyed by confidence that more rate cuts are on the horizon and that a soft landing is on the horizon.
That rally would happen regardless of a 25- or 50-basis-point cut, he said, if the Fed saw future cuts as likely. But even then, Lee acknowledged there would be volatility leading up to the election but that things would calm down afterward for a strong year.
Lee has been bullish on stocks for years, predicting that the S&P 500 could triple and reach 15,000 by 2030.
Other analysts also recognize the market volatility that comes with presidential elections.
That volatility typically peaks in mid-October, just before the November election, and then stocks see a relief rally once the results are in, SoFi’s Liz Young Thomas told Business Insider earlier this month.
Given the upcoming volatility surrounding the elections, Lee advises investing in cyclical stocks in sectors such as industrials, financials and small caps.
Small-cap stocks in particular will benefit from interest rate cuts and what Lee calls a “cyclical boost to the economy” that will come from falling consumer expenses such as mortgages, auto loans and credit cards.
“These are all huge windfalls for small caps,” he said.
Read the original article on Business Insider
