With strong earnings reports from the FANG stocks on Thursday, coupled with the ongoing reopening of the US economy, earnings visibility is set ...
Cindy Ord/Getty ImagesWith strong earnings reports from the FANG stocks on Thursday, coupled with the ongoing reopening of the US economy, earnings visibility is set to increase. That will help drive the stock market to new all-time highs later this year, according to Fundstrat's Tom Lee.
In an interview on Friday with CNBC's Scott Wapner, Lee said that many investors are ignoring an upcoming binary event that has a high probability of success: a breakthrough in the development of a treatment or vaccine for COVID-19.Lee said investors should have exposure to sectors that were hardest hit by the COVID-19 pandemic, because"in a world where there's a vaccine or cure, they've got defendable businesses."
Visit Business Insider's homepage for more stories.Investors should prepare for new all-time highs in the stock market and have exposure to both the FANG stocks and the so-called"epicenter" stocks, or companies that were hardest hit by the COVID-19 pandemic.
That's according to Fundstrat's Tom Lee, who said in an interview that Thursday's blockbuster earnings reports from Facebook, Amazon, Apple, and Google-parent Alphabet, coupled with the ongoing reopening of the US economy, set the stock market up well for the rest of the year.
"We've got the FANG, which is 20% of [S&P 500] market cap, we've got secular growth and tech posting good earnings, and now if the economy is going to safely reopen, there's enough visibility for earnings growth to improve and that's how we get to all-time highs," Lee told CNBC's Scott Wapner on Friday.
Lee highlighted that while large-cap tech stocks may look expensive, relative to bonds, they're actually cheap.Read more:RBC lays out 6 trades to make now ahead of a possible Democratic sweep in the elections - and explains why waiting until November is the wrong move
According to Lee, the 10-year US Treasury trades at a price-earnings multiple of 180x, while corporate bonds trade at a price-earnings multiple of 40x,"so FANG's actually pretty cheap as a bond proxy," Lee said.Lee advised investors to continue holding exposure to FANG and other secular growth stocks, saying they make up 20% of S&P 500 earnings and market cap,"so they're not expensive versus the market," he said.
Lee also recommended investors buy stocks in discretionary sectors like casinos and theme parks."I think if cases are plateauing and the economy re-open moves forward, 60% of earnings growth are going to come from four groups, the epicenter sectors. And these are under-owned and historically really are the trade you want to rotate into," he said.
Read more:200-plus money managers pay thousands to set eyes on Jim Osman's stock buy list. Here are 2 he says are set to soar - and an under-the-radar IPO to keep a watch onLee said investors should be buying epicenter stocks because investors"have very little exposure" to them even as they make up 25% of the S&P 500.
Lee added that many investors are ignoring an upcoming binary event that has a high probability of success: a breakthrough in the development of a treatment or vaccine for COVID-19.If that happens, expect consumers to become less fearful and feel more comfortable going out and spending, and investors to rotate out of growth and into the epicenter stocks.
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Tom Lee is a BS forecaster. You're better off just flipping a coin than taking his evidence based bs. Maybe because its really a ponsi scheme and tom lee is leading the charge..but hey we're all on board and hopefully he's right. fundstrat Epic interview or discussion, him and CathieDWood - 2-3 hr Joe Rogan style chat. Weed optional.
Nice news, but it is likely temporary. High powered experts are predicting a crash/harsh correction. Optimism may carry the market through the election, but after it becomes clear that there is no fast was out of COVID19 that may change. TrumpDepression fundstrat Tom - don’t you think the market has to correct first before we can achieve ATHs? The people with money on the sidelines will not enter this market at these levels, as even the Small Caps are overvalued.
fundstrat Good article fundstrat Not in Australia thanks to DictatorDan 🤦♂️
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