The stock market could surge 18% to new highs by year-end as the 2022 bear market is over, Fundstrat says

Tom Lee of Fundstrat said in a note on Friday that the stock market could be ready for new record highs before the end of the year.

The biggest lesson I can take away from this week? He said the bear market is over and that the bottom is in.

Lee's confidence stems from the fact that between a negative GDP print, another 75-basis-point interest rate hike from the Fed, and more natural gas volatility, a lot of bad news happened this week.

It's time for investors to assess when bad news doesn't affect markets.

Companies are reporting better-than-feared results despite a strong US dollar. More than half of the S&P 500 have reported second-quarter earnings so far.

Stock prices are driven by earnings in the long run.

The results from Apple, Microsoft, and Amazon all alleviated investor concerns about the resilience of their growth and their ability to manage inflation, which helped propel their stock prices this week.

Lee thinks the economy has reached a point where incoming data will be less negative and disinflations will strengthen. The decline in commodities has resulted in some price declines for consumers.

The stock market could fully recover and march to new highs in the next four months if the Fed continues to mirror the actions of Paul Volcker.

The stock market bottomed out in August 1982. Two months before Volcker abandoned his anti-inflation measures. He said that stocks recovered the entire 36 month bear market loss.

Powell said at Wednesday's meeting that the Fed would be more data dependent in its rate hike decisions and that he wouldn't give guidance for the September meeting. Powell could pivot from the Fed's current policy of hiking rates if disinflationary forces take hold.

New highs could be seen before YE. Lee said that the S&P 500 could be above 4,800 before the end of the year.