Fundstrat: Retail investors are returning to the stock market in the next 18 to 24 months or may welcome the “best investment cycle of life”

The Zhitong Finance App learned that Tom Lee, head of research at Fundstrat, said that as retail investors begin to reallocate capital back to the stock market after experiencing risk aversion caused by geographical conflicts, the next round of rising US stocks is poised to begin. In an interview, Lee pointed out that although these investors chose to leave the market and wait and see at the beginning of the escalation of the US-Iran conflict, they are now “beginning to re-invest their OTC capital into the stock market.” He anticipates that retail investors will eventually “drive up this round”, driven by solid fundamentals such as rising profit expectations.

According to Li's analysis, the initial reaction of retail investors to the Iran conflict was unusually biased towards risk aversion, breaking the “buy on dips” model they used to in the past amid market turbulence such as trade frictions. He attributed this hesitation to “policy confusion,” arguing that investors “can't judge the room for this conflict to escalate,” and worried that soaring gasoline prices could trigger a recession.

“I think investors saw the outbreak of war as an opportunity to reduce risk exposure,” Lee said, pointing out that sectors such as software stocks and “Big Seven” technology stocks experienced large-scale sell-offs at the time.

While retail investors are waiting and waiting, hedge funds have taken the lead in adding risk positions back into their portfolios. Lee confirmed this trend through Fundstrat's customer survey and emphasized that “significant downside risks associated with the war have been lifted.” The advance arrangement of institutional funding paved the way for retail investors to enter the market faster.

Although there are still public concerns about gasoline prices, Lee believes that the actual situation of American consumers is better than the level reflected in the sentiment survey. He stressed that inflation-adjusted gasoline prices “are far from burdensome levels five years ago, ten years ago, or even when they peaked in 2008.” Furthermore, Lee pointed out that “war is instead stimulating the economy,” and profit expectations, ISM manufacturing data, and employment reports are all improving, showing the internal resilience of the economy.

Lee continues to surpass US stocks, believing that the US market is a “growth index benchmark” for global investors seeking opportunities. He pointed out that “the supply chain problems revealed by this war have instead strengthened America's comparative advantage,” compounding America's continued leading position in the fields of technology, healthcare, and fintech. He expects that US stock valuations will not only not shrink, but rather expand.

Looking ahead to a longer-term outlook, even considering short-term challenges such as a change in the Federal Reserve chairman's term, Lee still gave an extremely optimistic judgment: profit growth and valuation expansion are expected to jointly drive up the market, and the next 18 to 24 months “may be one of the best investment stages we have seen in our lives.”