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Small-cap stocks could be headed for a big rally amid Trump’s second term, Tom Lee says.
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“I think small caps could, over the next two years, outperform by more than 100%,” he said.
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Lee predicted in July that small caps would see 40% growth for the rest of this year.
Donald Trump’s presidency could deliver monster gains to one particular corner of the stock market in the coming years, according to Fundstrat head of research Tom Lee.
Speaking to CNBC on Friday, the outspoken stock forecaster said he saw strong upside for small-cap stocks in the coming years. This is due to Donald Trump’s recent election victory, which sent stocks soaring this week as traders anticipated a new economic agenda, a more flexible regulatory environment and lower taxes.
Small cap stocks have done well so far this year, with the Russell 2000 up 18%. Still, the small-cap index trades at about 10 times average forward earnings, Lee noted, reflecting a lower valuation than the S&P 500, which trades at about 17 times forward earnings.
“I think there are still a lot of advantages,” Lee said. “So I think small caps could, over the next two years, outperform by more than 100%,” he added.
Lee, who previously predicted the Russell 2000 small-cap index could rise as much as 40% before the end of the year, also said he sees big gains ahead for other assets pooled in Trump Trade, a handful of investments believed to will benefit under the president-elect’s policies.
Bitcoin, which hit a record high this week, could surpass $100,000 by the end of the year, Lee predicted. Meanwhile, the S&P 500 could rise another 5%-10% through the end of the year, he said, pointing to the size of previous post-election rallies.
“Part of the reason investors are feeling so optimistic is that President Trump takes office again, but this time with much more knowledge about how to build a cabinet and a team, so in some ways this ends up being more market-friendly,” he added.
However, there are questions about some aspects of Trump’s economic agenda, which experts have warned could stoke inflation and keep interest rates high for longer. Seventy percent of economists surveyed thought Trump’s policies were more inflationary than Harris’s, according to a survey by the Financial Times and the University of Chicago.
Read the original article on Business Insider