Fundstrat founder Tom Lee says 2022 could be treacherous for stocks, but he still expects the market to end the year higher.
The widely-followed analyst, who was among the first to say buy stocks in March 2020, released his 2022 outlook Tuesday morning and forecasts the S&P 500 will reach 5,100 eventually, after some turbulence along the way. That target would mean an 11% gain from Monday’s close.
He also said the current sell-off appears to be close to an end.
“For next year, I think it’s going to be treacherous. I think it’s going to be a much tougher year than 2021, and one of the reasons is you have the midterm elections,” said Lee, in a telephone interview. “You’ve got the Fed raising rates and liftoff, and it looks like it’s going to happen before the middle of the year, and you still have the lingering issues of the supply chain and inflation and Covid.”
S&P 500 year-to-date
“I think it’s easily flat or down in the first half. So, I think we could be negative year-to-date by the middle of the year,” he said. “But once we get to the midpoint, we could see something like stocks rally 10% to 15% in the second half.”
As for the current selling, Lee said his technical strategists expect the market to bottom soon, possibly before the Christmas holiday.
“I think we’re much closer to the end of this sell-off than the start,” he said.
Top sector, stock picks
Lee said his top three sectors for 2022 are tech, energy and health care. “It’s a much more complicated year next year. It’s a very different year,” he said. “I think basic materials is not going to be a very good place. I think industrials are tough, but I think banks should be fine.”
In tech, he particularly likes the FANG group, which includes Facebook parent, Meta Platforms; Amazon; Netflix and Google-parent Alphabet. He would also include Apple and Microsoft.
“They’re still going to grow earnings nicely,” he said. He added that the FANG names saw their price-to-earnings ratios decline in 2021, but that should turn around and they should improve in 2022.