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Tags: economy | s&p 500 | republicans | midterms | stocks | inflation

Fundstrat: GOP Gains in Midterms Could Rally Stocks 25 Percent

By    |   Wednesday, 26 October 2022 04:16 PM EDT

Stocks could climb 25% as Republicans make gains in the midterm elections, according to Fundstrat head of research Tom Lee.

Stocks have recently seen gains, but the S&P 500 is still down around 30% this year when accounting for inflation.

Even if the S&P 500 rallied 20% this year, it would still be a loss of 16% in real terms. Lee said this would mean the Fed has already succeeded in stabilizing financial conditions and could ease up on rate hikes that would elevate the stocks further.

"This is a dramatic wealth-effect loss and tightening of financial conditions," Lee said, commenting that the Fed has already "won."

A pivot from the Fed looks probable after central bankers hinted at a potential pause in rate hikes. Earlier this year, premature hopes of a pivot sent stocks up 16%, noted Lee.

"All of this, in our view, are reasons that any equity rally should exceed that seen in July, which was the 'false dawn of a Fed pivot,'" said Lee. He predicts a 30 to 50 day rally and a rise of 20% to 25% in stocks.

Lee sees these gains as being disinflationary as Republicans would likely reel in government spending and, as a result, reduce the risk of a wage-price spiral.

Although others on Wall Street worry about a recession, Fundstrat's view of a rally has its support.

Jeremy Siegel, a Wharton professor, noted that the Fed had made a "tremendous amount of progress" on inflation, and a 30% stock rally could occur in 2023. That is as long as central bankers do not overtighten the economy into a recession.

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Stocks could climb 25% as Republicans make gains in the midterm elections, according to Fundstrat head of research Tom Lee.
economy, s&p 500, republicans, midterms, stocks, inflation
273
2022-16-26
Wednesday, 26 October 2022 04:16 PM
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