Wall Street stocks fell hard on Friday after President Donald Trump announced new tariffs on Mexico. Major indices were in the red the entire session after Trump promised a string of gradual tariffs to pressure Mexico into cracking down on illegal immigration into the United States. The photo was taken by Don Emmert and should be credited to Don EmmERT.
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Tom Lee expects the S&P 500 to rally by the end of the year.
De-risking among investors is evidence that bad news is already priced in.
There is a chance that the year-end rally in stocks could be derailed.
The S&P 500 fell about 5% in a week as investors were concerned about the Omicron variant of COVID-19 and the Fed Chairman's pivot last week.
Fundstrat's Tom Lee said that the concern surrounding these two factors is already priced into the markets.
"Hedge funds have dramatically de-risked on the dual risks of Omicron and Fed tapering," Lee said, explaining that institutional investors have raised cash in each of the last 5 weeks and institutional cash on the sidelines now sits at more than $3.2 trillion, the highest level in all of 2021.
Cash on the sidelines is firepower. Lee said that sign of a bottom was not a top. There is a chance that the projection of the S&P 500 to surge to 4,800 by year-end could be derailed.
The "bad" scenario is Omicron turning out to be more lethal than anecdotal evidence suggests, with the Fed remaining hawkish and not walking-back prior comments to a more dovish stance.
The Fed is likely to become more dovish if Omicron turns into a deadly threat that evades vaccines and shatters consumer confidence, according to Lee.
Fundstrat thinks that Omicron is a milder variant of COVID-19, and that the Fed will either be dovish or behawkish. According to Lee, the stock market can rise in the face of a Fed that is rolling back its monthly bond purchases at an accelerated pace because interest rates are still historically low.
There was a lot of carnage in the past few weeks, but this doesn't mean there won't be a strong equity rally into year-end. Lee concluded that that remains the base case.
Fundstrat.
Business Insider has an original article.
