JPMorgan Chase & Co's Thomas Lee: Stocks Will Rise "Much Higher" by End of 2008
Thomas Lee, the chief equity strategist at JP Morgan Chase & Co., has gone on record twice in the past couple of months, saying that he believes that the S&P 500 will trade "much higher" by the end of 2008. How high? Lee is sticking to a target of 1,450 for the S&P 500, which would be about a 13% gain from today's levels.
Lee figures that falling commodity prices are going to ease inflation concerns, which will in turn lead investors to buy shares in "out of favor" sectors that have been adversely affected by high commodity prices. By "out of favor, contrarian" sectors I'm assuming that Lee may be talking about US automakers, airlines and financial stocks, amongst others.
Lee's projections are not out of line with the general consensus - according to Bloomberg, nine Wall Street strategists were asked to give their year-end projections for the S&P 500, with the average number being 1,454. So in general, Wall Street is pretty optimistic (you can't be surprised) that the stock market is going to rebound throughout the second half of 2008.
Falling commodity prices will have a huge impact on the market, if they continue to drop. If oil continues its plunge and takes other commodity prices with it, then the market will also surely rebound strongly to the upside.
There are obviously other issues, including rising unemployment and a plunging housing market. The housing market is showing signs of starting to stabilize in certain key markets (most notably, southern California). A stabilizing housing market (if it happens) would boost confidence confidence and help to prop up the stumbling economy. Lower commodity prices would also serve the same purpose. There is a reason that consumer confidence is so low right now - spiraling inflation and falling home values.
My personal opinion is that commodity prices will continue to drop as we hit September and October, and the housing market will continue to show signs of life. This will fuel higher consumer confidence, which will help lead the economy out of the funk that it is currently in. All of these factors will conspire to lift the stock market higher - I see nothing wrong with a S&P 500 target of 1,450. I'm certainly not a cheerleader for the market, but there just seems to be way too many bears out there right now, and my contrarian "Spidey" senses are tingling.
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