Tom Lee Predicts Rally for Small Caps After Fed Meeting
- Tom Lee, the head of research at Fundstrat, has predicted a significant rally in small-cap stocks following the recent Federal Reserve meeting.
- He believes that small caps will lead the market's upward momentum in the near future.
- Investors may want to consider this insight as they reassess their stock portfolios.
In a recent note to clients, Fundstrat's head of research, Tom Lee, has made a bold prediction regarding the stock market's trajectory following the Federal Reserve's upcoming interest rate policy announcement. Lee advises investors to "buy the fear" as he anticipates a significant market rally, projecting a potential increase of 4% to 5% in the five sessions post-meeting, primarily driven by small-cap stocks. He estimates that this rally could add approximately 100 points to the S&P 500 index. Lee's forecast aligns with his earlier predictions, including a 50% surge for the Russell 2000 index in 2024. He expects small-cap stocks to gain at least 6% during this anticipated rally, building on their current performance, which has seen the index rise over 10% this year. The small-cap sector has particularly benefited from a 9.5% increase in July, as investors shift their focus towards these stocks amid growing expectations for interest rate cuts from the Federal Reserve. As the market gears up for the Fed's decision, there is a strong consensus among investors that rates will remain unchanged at the July meeting, with futures indicating a 95% probability of this outcome. However, the primary focus will be on any signals regarding potential rate cuts in September, with futures trading suggesting a complete certainty of easing at that time. Lee's insights reflect a broader sentiment of optimism in the market as investors prepare for the Fed's next moves.