3 things point to strong stock market growth through December, even as election uncertainty looms, says Fundstrat

• Investors should “stay on target” and hold stocks until the end of the year, Fundstrat’s Tom Lee said.

• Lee cites falling debt margins and an accommodative Fed as key reasons to be bullish on stocks.

• “We haven’t really seen spikes until the margin debt really starts to turn around,” Lee said.

Investors should “stay on target” and hold stocks through the end of the year, according to Fundstrat’s Tom Lee.

In a note to clients on Wednesday, Lee offered three reasons why he expects the stock market to finish the year strong despite the uncertainty surrounding November’s presidential election.

“The message is to stay on target and know there’s still firepower,” Lee said.

That “firepower” refers to the fact that FINRA margin debt fell to $797 billion in August, well below the October 2021 peak of $936 billion.

FINRA margin debt measures the amount of loans that investors take out to buy stocks. The gauge has a history of rising and falling with the stock market, and according to Lee, there is still room for margin levels to increase, suggesting that share prices could post more gains.

“We haven’t really seen spikes until the margin debt really starts to turn around,” Lee said.

The potential increase in leveraged debt coincides with a Federal Reserve turning dovish, which should be a tailwind for stock prices, according to Lee.

Lee crunched the numbers and found that since 1971, the S&P 500 has performed strongly when the Fed began cutting interest rates at a time when the economy was still strong.

According to Lee, there have been seven instances of Fed rate cuts that have coincided with a “no-landing” in the economy, and three- and six-month stock market returns have a 100% earnings ratio, with average returns of 8 % and 13%, respectively.

This bodes well because stocks will continue to hit record highs through the end of the year.

“Don’t fight the Fed,” Lee said.

Finally, Lee pointed out that the S&P 500 tends to produce strong gains in the second half of the year after a 10% gain in the first half of the year.

The S&P 500 is up 14% in the first half of 2024, putting this in play.

The data shows that since 1950, the S&P 500 has delivered an average second-half gain of 9.8% under such circumstances, for an 83% earnings ratio.

“The only down years were the Volcker ‘solicit’ years. But now, the Fed is accommodative,” Lee said.

He added: “In conclusion, stay constructive.”

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