Stock market outlook: IS&P 500 could rise to 15,000 by decade’s end
Fundstrat Global Advisors founder Tom Lee was among the few voices on Wall Street last year who predicted a rally in the stock market while most of his peers saw a decline amid widespread optimism about the recession.
But he — and the US economy — proved the naysayers wrong. In fact, among forecasters surveyed by Bloomberg, Lee’s 2023 call appeared to be the most accurate.
And this year, he’s still hitting his guns and nailing them. In early June, he said the S&P 500 would hit 5,500 by the end of the month. As of Friday’s close, it was at 5,464.62.
Now, he has a longer-term forecast, and it’s a surprise: By the end of this decade, Lee said the S&P 500 could hit 15,000, representing more than 170%.
In a recent episode of Bloomberg’s Odd Lots podcast, recorded on Tuesday, he began by explaining his evidence-based forecasting method, which looks at history and across assets. He said the bond market is smarter than the stock market: “That’s why they say equities are the world of C students.”
He also believes that investors can’t fight the Federal Reserve and is focused on themes that will boost growth, such as how millennials are reshaping the economy, the global labor shortage that will boost AI and tech stocks, and energy security and cybersecurity. By picking the strongest stocks in each theme, he has outperformed the market every year since 2019, Lee said.
Wall Street often underestimates the impact of new technologies, which are often first adopted by young adults and 20s while most top investment professionals are in their 40s and 50s, he added, noting that cell phones were initially dismissed as toys for the rich. . The same thing happens with AI.
“The adoption rate of AI is amazing, but the use case is important because there is a shortage of workers,” said Lee. “So to me, I think we may be underestimating how much money all these companies are going to make.”
And as labor demand continues to outstrip supply, AI will become more critical. At the end of the decade, he estimated that the global labor shortage would equal 40 million workers, or $3 billion worth of wages. Considering that most automation comes from hardware like semiconductors, that means whoever provides the chips could have $2 billion in cash, he explained.
Eventually, technology will represent 40%-50% of the world’s stock market weight, up from about 20% today, Lee said.
“In a normal world, if this is a normal S&P cycle following demographics, I can give a chart later, the S&P should be 15,000 by the end of the decade,” he said. “As you go in the long run, maybe that’s where I think we’re headed.”
The stock market is already heavily focused on tech and AI stocks, with Nvidia alone accounting for more than a third of the S&P 500’s gains this year. Meanwhile, Wall Street is scrambling to keep up with the market’s relentless rally, with many analysts raising their year-end targets.
Such intensity and focus on markets has raised concerns that the AI hype is a sign of a bubble that is about to pop. But Lee downplayed those worries, pointing to a key difference between previous bubbles like the dot-com boom and bust.
He noted that Nvidia has a greater competitive advantage than Cisco did at the start of the Internet boom. And unlike the dot-com bubble, there is a dearth of overhyped IPOs today, he added.
Lee is not the only Wall Street bull to make bold predictions. Ed Yardeni has been banging on about another big cycle of the “Roaring 20s” and said the S&P 500 will jump to 6,000 next year.
And by the end of the decade, he said the stock index could reach 8,000—not as high as Lee’s estimate but still good enough for a 46% jump.
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