Fundstrat’s Tom Lee has released his next jaw-dropping prediction, which means good news is in store for the market in the coming days. The firm’s head of research said in a note to clients on Tuesday that investors should “buy fear” ahead of the Federal Reserve’s interest rate policy announcement on Wednesday. Lee said there is a high chance that the market will rise by 4% to 5% in the five trading days after the meeting, and that the market will be driven higher by small-cap stocks. “In short, we believe the rebound in risk appetite that began on Wednesday could see the S&P 500 gain 100 points,” he told clients. It is the latest in a series of significant but largely successful calls by Lee in recent months. His comments about small-cap stocks leading the rally are consistent with predictions earlier this year that the Russell 2000 index would soar 50% in 2024. Lee said investors expect small-cap stocks to rise at least 6% on this rally alone. For reference, the small-cap-heavy index is now up more than 10% this year. The stock has gained 9.5% so far in July as investors have turned to the stocks on growing hopes that the Federal Reserve will cut interest rates soon. “We still think this is the ‘summer of small caps,’ so we’re leaning towards a buy,” he said. A 5% rise would push the S&P 500 to a record intraday high, breaking the record set earlier this month. According to CME Group’s FedWatch tool, federal funds futures are pricing in a more than 95% chance that interest rates will remain unchanged at the July meeting. But investors will mainly focus on signs that the central bank is preparing to start cutting interest rates in September, with federal funds futures trading pointing to a 100% chance of easing by then.
