Tom Lee says “2022 will likely be another laboring year but end up in double digits.”
He expects the S&P 500 to add 11% to 5,100 and identifies three driving factors likely to aid this outlook.
Energy, FAANG, and healthcare stocks are his top picks for a major bounce in 2022.
The S&P 500 closed 1.78% higher on Wednesday as the broader US stock market rallied following a slowdown on Monday.
Although the gains add to a largely good year where the index has risen 23.78% year-to-date and 26.09% over the past year, sell-offs have slowed what would traditionally be a year-end rally, with S&P 500 down -0.88% over the past month.
The S&P 500 to add 11% in 2022
Many analysts expect fresh momentum in 2022 to push the S&P 500 higher, with the main detour likely seen in the first half of the year.
Tom Lee, the head of research at Fundstrat Global Advisors, says 2022 will see record gains for stocks. He told CNBC’s “Fast Money” that he expects an uptick of at least 11% to 5,100 by year’s end.
According to Lee, the double-digit gains should see the S&P 500 post a fourth straight year in the green. The investor however says the projected gains will largely come after a difficult first half of the year.
He identifies some of the factors he says could impact the market in the first half of the year as struggles related to supply chain glitches, effects of these on GDP growth and inflation perceptions, and potential setbacks related to Covid-19.
The Fundstrat researcher also sees the Fed’s tightening providing a lift only mid-way through 2022, with markets remaining nervous before then despite the Fed’s hawkish tone.
Lee says a January relief is possible, helping some of the stocks that saw losses of 20%, 30%, or more. He highlights top picks for 2022 to be energy, healthcare, and FAANG stocks.
“I think in the first half, it will make sense for the markets to be flat or down, but in the second half we end up having a pretty traditional bull market rally,” he told CNBC.
Among bull factors likely to spark a risk-on rally will be economic growth alongside flattening inflation and normalisation in the supply chain sector.
He also foresees a bumper second half of the year given market volatility related to the outcome of the US midterm elections. Another factor will be “guaranteed” TINA, he noted, with stocks so attractive investors will see no other alternative.