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Analyst sees a promising moment for shares
- Financial analyst Tom Lee sees a promising time for stocks, thanks to artificial intelligence innovation and a massive wealth transfer to millennials.
- As a result, Lee said, “We believe the earnings power is much better than people realized.”
Longhua Liao | Moment | Getty Images
Some investors may be concerned about future market volatility, given the controversial presidential racepersistent inflation, sinking consumer sentiment and uncertainty about the Federal Reserve interest rate cuts.
Financial analyst Tom Lee has a more optimistic outlook.
“Since Covid, companies have gone through a huge stress test and shown that they are really good at adjusting to inflation shocks, supply shocks and economic shutdowns,” said Lee, managing partner and head of research at Fundstrat Global Advisors.
He spoke on Wednesday at CNBC Financial Advisor Summit.
As a result, he said, “We think the earnings power is much better than people realized.”
Even if inflation cools, many companies will benefit, Lee said. (Higher prices are generally considered good for companies.)
“Many companies have an inverse correlation with inflation,” he said. “A great example is that technology is inversely correlated with inflation, so your margins increase if inflation is falling.”
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Regarding concerns that the Federal Reserve might trigger a recession whether to reduce interest rates prematurely? Lee doesn’t see that happening.
“We are more optimistic that they will achieve the idea of a soft landing,” he said.
Lee said his company has studied what drives innovation cycles in America. In the two major previous periods – in the 1940s and 1950s, and again in the 1990s – there was a global labor shortage.
“There was a lot of pressure on wages or on ways to innovate to produce more products,” Lee said.
“We have entered a period of structural primary labor deficit, which will last until 2045, which means that another technological cycle, I think, is underway.”
Lee estimates that the worker shortage will leave companies with an additional $3 billion a year that they would otherwise have spent on wages.
“For us, this is really the beginning stage of the amount of money that will be spent on generative AI,” said Lee, pointing to the profits already made by companies like Nvidia.
Another reason Lee sees a promising time for stocks: Over the next 20 years, millennials will be set to inherit up to $90 trillion from the baby boomer generation, according to some estimates.
“[It’s] one of the largest wealth transfers ever in history, it is more net worth than the entire net worth of China,” Lee said.
The so-called large wealth transfer could cause certain stocks to rise dramatically, he said.
“A lot of research we saw five years ago showed that young people trust technology companies more than governments, which means they will support technology and innovation,” Lee said.
Despite stocks’ all-time highs, it’s often best for clients to stick to their long-term strategies, said Douglas Boneparth, certified financial planner, president and founder of Osso Fide Wealtha wealth management firm based in New York City.
“Disciplined investors have been rewarded throughout 2023 and into 2024,” said Boneparth, a member of CNBC Financial Advisory Board.
This not only means not panic selling during inevitable dips, but also keeping some assets a healthy distance from the market even during good times.
“I remind our clients that maintaining a robust cash reserve is important to help navigate volatility and protect against emergencies. [and to] take advantage of every opportunity,” said Boneparth.