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Fundstrat's Tom Lee believes that the S&P 500 will rally into the end of the year.
The call is at risk because of the ongoing volatility stemming from a potential policy change by the Fed.
Lee still expects the S&P 500 to rally to as high as 4,800 over the next two weeks.
Fundstrat's Tom Lee is steadfast in his prediction that the S&P 500 could rally 4% from current levels by year-end.
While the S&P 500 closed at a record high of 4,712 on Friday, the index subsequently fell as much as 2% this week as investors fret over a potential policy change announcement from the Fed.
Technicals have suffered some damage, and nobody want to be a hero in front of the meeting. Lee said in a Tuesday note that the base case remains YE rally.
Bank of America's fund manager survey shows that investors think Fed policy is the top tail risk impacting equities. According to a note from JP Morgan, the bond market is pricing in three interest rate hikes.
Three interest rate hikes would be a shock to investors who have been conditioned to expect easy monetary policies from the Fed.
A record rally in the stock market could happen over the next two weeks because of a potential pivot by the Fed this Wednesday.
Positive seasonals.
The S&P 500 returned 1.5% in December, making it the third best month of the year for returns. The stock market has a positive return in December more often than any other month of the year.
The seven days after Christmas that have generated returns of 1.3% for the S&P 500 have a positive hit rate of 80%.
"Positioning data."
According to various readings, including a recent Bank of America fund manager survey, cash allocations are jumping to 5.1%, generating a tactical buy signal. More than $3 trillion in institutional cash is sitting on the sidelines.
"Negative sentiment."
The most recent sentiment survey from AAII showed bullish responses, while bearish responses were close to their historical average. The CNN Fear and Greed indicator is currently in the extreme category with a reading of 24.
"Omicron could peak."
If there is a peak in Omicron cases in South Africa or the UK, investors will be reassured.
FDA could approve COVID-19.
Pfizer's COVID-19 was found to be 89% effective in preventing hospitalizations of COVID patients. Relief of pressures of America's hospital system will help return to normal. The pill could get emergency use authorization within weeks.
The meeting will be in the rear view mirror.
With three rate hikes already priced into the markets, any dovish tilt from Chairman Powell could serve as a catalyst for higher equity prices.
Business Insider has an original article.
