Tom Lee, co-founder of Fundstrat Global Advisors, was one of the few people on Wall Street who predicted a rise in stocks last year when a recession was widely expected and most of his colleagues saw stocks fall.
But he and the American economy proved the doomsayers wrong. Forecasters surveyed by BloombergLee’s prediction for 2023 turned out to be the most accurate.
And this year, he’s winning on his own terms. The S&P 500 will hit 5,500. By the end of the month. As of Friday’s close, it was at 5,464.62.
Now he’s making a longer-term prediction, and it’s outrageous: Lee says the S&P 500 could reach 15,000 by the end of the century, representing a gain of more than 170%.
In a recent episode Bloomberg Odd Lot PodcastsIn an interview recorded on Tuesday, he began by explaining his evidence-based approach to forecasting, which looks at history and the entire wealth pool. He said the bond market is smarter than the stock market. “That’s why they say the stock market is a C-grade market.”
Lee also believes investors can’t compete with the Federal Reserve, so he’s focused on themes that will drive growth, such as how millennials are transforming the economy, a global labor shortage that’s boosting AI and tech stocks, and energy and cybersecurity. By picking the strongest stocks within each theme, Lee said, he’s outperformed the market every year since 2019.
Wall Street generally underestimates the impact of new technologies — they’re usually first adopted by people in their teens and 20s, but most of the top investment professionals are in their 40s and 50s, he added, noting that mobile phones were initially looked down upon as a rich person’s toy. The same thing is happening with AI.
“The adoption rate of AI is staggering, but the use cases are important because of the labor shortage,” Lee said. “So I think we’re likely underestimating how much revenue these companies are going to make.”
And AI will only become more important as demand for workers continues to outstrip supply. In 10 years’ time, he estimates, the global labor shortage could be the equivalent of 40 million workers, or roughly $3 trillion in wages. Given that most automation comes from hardware like semiconductors, companies supplying chips could stand to earn $2 trillion in revenue, he explained.
Lee said technology stocks will eventually make up 40% to 50% of the global stock market, up from about 20% now.
“In a normalized world, if this is a normal S&P cycle that follows demographics – I can provide a chart for you later – the S&P could hit 15,000 by the end of the decade,” he said. “As you move to a longer time frame, I think we’re probably headed there.”
The stock market is already heavily concentrated in tech and AI stocks, with Nvidia alone accounting for more than a third of the S&P 500’s gains this year, while Wall Street is scrambling to keep up with the market’s relentless rally, with a growing number of analysts raising their year-end targets.
Such bullishness and market concentration have raised concerns that the AI boom is a sign of a bubble about to burst, but Lee downplayed those concerns by pointing out a key difference between previous bubbles, such as the dot-com bubble and its collapse.
Nvidia has a much bigger competitive advantage than Cisco did during the early days of the internet boom, he said, adding that unlike the dot-com bubble, there are fewer overly hyped IPOs today.
Lee isn’t the only Wall Street bull making bold predictions. Ed Yardeni has contended that the “Roaring Twenties” super cycle is coming again, saying the S&P 500 could soar to 6,000 by next year.
And in 10 years, the stock index will be It could reach 8,000.While not as high as Lee’s estimate, it’s still enough for a 46% increase.
