Tom Lee, co-founder and head of research at Fundstrat, known as the "Wall Street Oracle," forecasts a strong December for U.S. stocks, with the S&P 500 potentially climbing to 7,300 by year-end—a 10% gain from current levels. Lee stated, "The S&P 500 only needs a 2% rise to reach 7,000. From here, I believe the index could surge 5% or even 10% in December." Despite a weak start to December—the S&P 500 fell 0.53% on Monday—Lee remains bullish, citing the Fed's end of quantitative tightening (QT) as a key catalyst. He compared the current situation to September 2019, when stocks rallied over 17% in three weeks after QT concluded.
Lee also noted that November's market volatility led to a healthy reset in positioning, with many fund managers "throwing in the towel" during the turbulence. This aligns with Goldman Sachs' trading desk view, which highlighted improving market breadth and declining volatility as positive signs for December. Goldman's senior trader Lee Coppersmith pointed out that the S&P 500's five-day advance-decline line rebounded from -150 earlier in November to +150 by Thanksgiving, signaling broader participation. Goldman's "volatility panic index" also retreated, now near 5, well below early November highs.
Systematic strategies, which contributed to $16 billion in S&P 500-related selling in November, have largely de-risked. Goldman now expects modest net buying of $4.7 billion in December. Coppersmith remarked, "This sets up a cleaner starting point for December compared to weeks ago."
Tom Lee further argued that the Fed's dovish stance will continue supporting equities and cryptocurrencies. Last week’s rebound in major indices—the Dow (+3.18%), S&P 500 (+3.73%), and Nasdaq (+4.91%)—was fueled by dovish Fed commentary and bets on Kevin Hassett as the next Fed chair. Lee emphasized, "If the Fed stays dovish, it’ll be a real tailwind." While cryptocurrencies like Bitcoin recently underperformed, Lee remains optimistic about their recovery aligning with equities.
Wall Street’s year-end outlook for the S&P 500 is broadly optimistic. JPMorgan’s Dubravko Lakos-Bujas projects a 2026 year-end target of 7,500, potentially surpassing 8,000 with sustained Fed rate cuts. Morgan Stanley’s Michael Wilson sees the index hitting 7,800, citing AI-driven efficiency gains and fading sell-off pressures.
AI investments and earnings growth diffusion are additional bullish drivers. JPMorgan noted that elevated P/E ratios reflect AI capex, shareholder returns, and fiscal stimulus, while Deutsche Bank expects a 14% EPS jump to $320 in 2026, with AI benefits spreading beyond the "Magnificent Seven" to cyclical sectors. UBS (7,500 target), HSBC (7,500), and Barclays (7,400, up 5.7%) similarly highlight AI and resilient tech earnings as key supports. Barclays raised its 2026 EPS forecast to $305, citing tech’s outperformance in a low-growth macro environment.
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