Tags: tom lee | s&p | 500 | animal | spirits | business | spending

Tom Lee: S&P 500 to Soar as 'Animal Spirits' Boost Business Spending

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By    |   Thursday, 11 January 2018 01:28 PM

Economic guru Tom Lee is predicting that the market will have another double-digit percentage gain this year.

"We are constructive on stocks in 2018, driven by earnings growth of +13% and slight P/E expansion, supported by strong global growth (tempered by rising core inflation)," Fundstrat Global Advisors' Lee wrote in a note to clients Thursday, CNBC reported.

Lee shared his five major investment themes for this year:

  • "Animal spirits driving upside to capex."
  • "Millennials entering prime income years."
  • "Rising core inflation."
  • "Automation given structural labor shortage."
  • "Blockchain innovation."

"We have highlighted styles and sectors that are positively leveraged to each theme. In short, we favor Value (over Growth) and Cyclicals," he added.

"Animal spirits" is defined by Investopedia as "a term used by John Maynard Keynes to explain why decisions are made even in times of uncertainty."

Meanwhile, Lee gave CNBC a 3,025 year-end price target for the S&P 500, which was trading late Thursday at 2,763.50.

The market rose 19 percent in 2017, CNBC explained.

"I think P/Es are definitely expanding. … I think it has a lot to do with demographics," Lee said on CNBC Thursday. "The millennials, which is almost 30 percent bigger than the boomers, are just starting their prime income years, so that's going to be runway till 2036."

Lee noted the recent rising purchasing managers' index numbers from Germany, Japan and the U.S., which signal strength in the manufacturing economies of developed countries.

"This is an example of the combination of pent-up demand and rising animial spirits leading to an accelerating global GDP picture," Lee wrote.

Thursday on Wall Street, U.S. stocks rose in a broad-based rally across sectors as speculation over China halting U.S. bond purchases eased and investors focused on quarterly earnings reports and higher oil prices, Reuters explained.

“It’s back to a generally positive mode,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

The S&P and the Nasdaq snapped their six-day rally on Wednesday after Bloomberg News reported Chinese officials had recommended halting its U.S. bond purchases, which China dismissed later.

Also weighing on the dour sentiment was a Reuters report on Wednesday that Canada is increasingly convinced U.S. President Donald Trump would soon announce an exit from the North American Free Trade Agreement.

“I think it is very disruptive. We’ve seen a lot of firms concerned about supply chains going forward, and many have tried to secure alternative supply-chains if the President pulls out of NAFTA. But the market is just taking this in a stride now,” Brown said.

For his part, Trump has been touting the record stock market on Twitter. 

"The Stock Market has been creating tremendous benefits for our country in the form of not only Record Setting Stock Prices, but present and future Jobs, Jobs, Jobs. Seven TRILLION dollars of value created since our big election win!" he tweeted last week.

Meanwhile, the biggest overhaul of the U.S. tax code in 30 years is designed to kick-start economic growth in part by offering new incentives for capital investment, which would allow businesses to lower their tax bills by writing off the cost of new machinery, among others, more quickly.

The overhaul includes cuts to corporate tax rates and a cap on business deductions for debt interest payments, Reuters explained.

The tax plan is designed to kick start economic growth in part by offering new incentives for capital investment, which would allow businesses to lower their tax bills by writing off the cost of things like new machinery more quickly.

U.S. commercial and industrial loan growth has shrunk to almost flat at the end of November from nearly 14 percent at the start of 2015, Federal Reserve data show.

And investment growth has likewise slowed to a near standstill. After a nearly 9 percent increase in 2014 and a nearly 10 percent jump in 2015, S&P 500 companies, excluding the capital-intensive energy sector, boosted capital expenditures by just 1 percent in 2016, according to Reuters data.

But surveys of business leaders consistently show that lackluster demand growth, and not access to capital, is what has been holding back investments.

And many companies face pressure to pass on any tax windfall to shareholders rather than invest in factories or hire workers.

(Newsmax wire services contributed to this report).

© 2019 Newsmax Finance. All rights reserved.

   
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Economic guru Tom Lee is predicting that the market will have another double-digit percentage gain this year.
tom lee, s&p, 500, animal, spirits, business, spending
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2018-28-11
Thursday, 11 January 2018 01:28 PM
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