Since 1985, when this has happens, stocks ALWAYS rise: Tom Lee
Stocks have had a nice few months, but a sign from the bond market suggests that the market's gains are set to accelerate, according to strategist Tom Lee of Fundstrat Global Advisors.
"Credit has made a big enough move, and it's telling us that over the next eight to 12 months, the stock market will have a big catch-up trade, which will be more than double digits" in terms of percentage gain, Lee said Thursday on CNBC's "Trading Nation."
"It's a sign investors should not ignore."
The strategist marshals some historical stats to make his point.
He points out that since 1985, high-yield bonds have posted double-digit gains in 15 separate years. In 14 of those 15 years, the S&P 500 has risen more than 10 percent; in the remaining year, 1992, stocks rose 8 percent.
To be sure, high-yield bonds have not risen double digits just yet. But after a big bounce from the February lows, high-yield bonds are up about 8.5 percent according to Lee, and the high coupons alone will add another 4.5 percent to the return by the end of the year (though of course if the bond prices drop, those gains could evaporate). That leads Lee to observe that the equity-like part of the credit markets are "on track" to return double digits.
"Stocks tend to follow credit, and high-yield is telling us that it's an important time to be owning equities," the often bullish Lee said Thursday, adding in a Friday note that the catch-up trade should drive the S&P 500 "to reach 2300-plus by year-end."
That would mean a 10 percent rally from Friday's opening price.
Courtesy of cnbc.com