Investors will overcome a rising wall of worry to push the S&P 500 beyond 4,800 by year-end, Fundstrat says

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  • The S&P 500 is set to jump beyond 4,800 by year-end as investors overcome a growing wall of worry, Fundstrat said.
  • Rising COVID-19 cases in the US and Europe, supply chain disruptions, and tanking consumer confidence represent worries for investors.
  • “Even as this wall of worry continues to mount, we believe this resolves in equity upside,” Fundstrat said.

Investors should expect more stock market gains into year-end even as concerns of rising COVID-19 cases, supply chain disruptions, and weak consumer confidence persists, Fundstrat’s Tom Lee said in a Monday note.

“Base case remains a strong rally into year-end taking the S&P 500 beyond 4,800,” Lee said, representing upside potential of at least 2% from current levels.

Lee believes the stock market will overcome concerns of rising COVID-19 cases in the US and Europe because hospitalizations remain well below prior peaks, in-part helped by rising vaccinations and the arrival of anti-viral medications from Merck and Pfizer.

Meanwhile, ongoing supply chain disruptions have hurt certain equity sectors and added to concerns of rising inflation, but signs suggest that the bottleneck of ships at ports is beginning to ease, lowering the risk of intensifying inflation, according to the note. 

Perhaps the biggest disconnect between the strengthening economy and record stock market highs is the sizable drop in consumer confidence, which hit its lowest level since 2011 this month. 

“Falling consumer confidence poses near-term risk for consumer spending, and potentially highlights a larger issue for the economy,” Lee said, adding that rising inflation and political views are the main reasons behind the marked drop.

But low levels of consumer confidence have historically been a great sign for the forward returns of stocks, signalling that there may be more upside ahead for the market.

Whenever consumer confidence falls below 74, consumer discretionary stocks return 21% to 30% over the next 12 months with a win-ratio of 88% or higher, according to Lee. Consumer confidence fell to 66.8 in the preliminary November report.

“Even as this wall of worry continues to mount, we believe this resolves in equity upside,” Lee concluded.