In an appearance on CNBC’s “Squawk on the Street” on July 1, Tom Lee, co-founder and head of research at Fundstrat Global Advisors, shared his thoughts on the current state of the markets, his predictions for the S&P 500, and his bullish thesis on Bitcoin.

Market Outlook and S&P 500 Predictions

Lee began by discussing the overall market conditions and his expectations for the S&P 500. As of mid-2024, Lee highlighted that earnings for 2025 are looking stronger than anticipated, with estimates rising from an initial $260 to potentially $275, $280, or even $285. He believes this improved earnings outlook is coupled with a potentially dovish Federal Reserve and a softening employment picture, which could lead to higher price-to-earnings (PE) multiples.

Lee emphasized that if the S&P 500 achieves earnings of $285 and applies a PE multiple of 20, the index could reach 5,800 by year-end. This projection implies a continued but more moderate growth compared to the first half of the year. He noted that such a scenario would result in a total return of a little over 20%, a significant figure given the market’s performance over the past two years.

Impact of Cash Holdings

Lee addressed the large cash reserves held by investors, amounting to $6 trillion. He suggested that this substantial liquidity, which has been sitting in cash earning 5%, might soon face a “Day of Reckoning” as investors realize they have missed out on significant market gains. This realization, he says, could drive more investment into equities, further supporting market growth.

Sources of Liquidity

When questioned about the origins of this liquidity, Lee acknowledged that it is a mix of earned income and stimulus measures. He pointed out that while the fiscal deficit remains high, much of the cash comes from earned income on assets, which historically would have been reinvested into the economy or equities.

Bitcoin Thesis

Tom Lee also discussed his bullish stance on Bitcoin, reiterating his target of $150,000. Despite previous volatility and skepticism, Lee remains confident in his projection. He attributed the recent struggles of Bitcoin to the overhang of the Mt. Gox distributions, which have been a concern for years. However, with these distributions expected to start in July, Lee anticipates a sharp rebound in the second half of the year.

Lee reminded viewers that Bitcoin’s gains are often concentrated in just a few days each year. Specifically, he noted that if the 10 best days are excluded, Bitcoin would have negative returns annually.

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