Fundstrat’s Tom Lee is out with his next eye-popping prediction — and it implies good news for the market in the coming days. In a Tuesday note to clients, the firm’s head of research said investors should “buy the fear” heading into the Federal Reserve’s interest rate policy announcement scheduled for Wednesday. Lee said there is a high probability of a jump between 4% and 5% over the five sessions following the meeting, with the market led higher by small-cap stocks. “In short, we see a risk-on rally starting Wed that could add +100 points to the S & P 500,” he told clients. It is Lee’s latest in a string of big, but largely successful, calls in recent months. His note about small caps leading the ascent falls in line with a forecast earlier this year that the Russell 2000 would surge 50% in 2024 . Lee said investors should expect a gain of at least 6% for small caps during this run alone. For reference, the small cap-focused index is currently up more than 10% this year. It has been helped by a 9.5% advance so far in July, as investors rotated into these names on increasing hopes for forthcoming interest rate cuts from the Federal Reserve. “We still see this as the ‘summer of small caps’ so our preference is to be buying,” he said. A rise of 5% would propel the S & P 500 to a new all-time intraday high, topping the record set earlier this month. Fed funds futures are pricing in a more than 95% probability that interest rates remain unchanged at the July meeting, according to CME’s FedWatch Tool . But investors will be mainly watching for signs that the central bank is ready to start cutting in September, and fed funds futures trading suggests a 100% likelihood of easing at that time.
