Tom Lee, co-founder and research director of Fundstrat Global Advisors, a US investment firm, recently stated that he still expects the US stock market to continue soaring to historic highs.
Lee said that although there were still some investors taking profits in the stock market after the February employment report was released, and there was a mild correction in the stock market on Friday, there are three reasons to expect the stock market to further soar. These factors include robust profitability, the Federal Reserve's interest rate cut later this year, and investors not yet showing any risky behavior.
He said in the latest interview, "There is room for profit to rise. The first quarter's profit exceeded expectations by 7%, so if the market generally believes it is $245, it means there may be $10 to $15 room for profit growth this year alone."
Lee stated that although corporate profits continue to rise, valuations do not seem too high, which provides impetus for further stock price increases.
"In terms of risk premium, if the Federal Reserve starts to cut interest rates and the economy is resilient, the P/E ratio is only 15 times (excluding the five major players of FAANG, namely Facebook, Apple, Amazon, Nvidia, and Google's parent company Alphabet)."
According to FactSet data, even with the inclusion of large technology stocks, the expected P/E ratio of the S&P 500 index is still 20.7 times, only slightly higher than its 5-year average of 19.0 times.
Finally, Lee stated that investors have not shown the "risky behavior" that often occurs at the top of market cycles.
"There is still $6 trillion in cash on the sidelines. Margin debt has hardly changed, below the level of a few months ago in October 2023, so I don't think investors are necessarily taking risks. What I mean is that I know the market is technically overbought, but our head of technical strategy, Mark Newton, believes that don't use overbought as a sell signal, because a strong market will still remain strong.".
Lee also stated that investors did not hold margin bonds, which ultimately means that selling may be short-lived as investors seek to buy on dips.
"When the leverage ratio is low, such as margin debt, it means that investors have not yet gone long and the background is improving, so it means they must take advantage of these pullbacks as opportunities to go long," he explained.