Fundstrat Global Advisors’ Tom Lee


Tom Lee, Fundstrat Global Advisors Managing Partner & Head of Research joins the Yahoo Finance Live panel to discuss Bitcoin at an all-time high, market outlook amid jobs day report and Capitol chaos.

Video Transcript

ZACK GUZMAN: I want to turn our attention to the markets here. And if Austan Goolsbee is one of our favorite economists to come on the show, I’ll welcome one of our favorite guests ever to nail the market action in 2020 here. That, of course, would be Fundstrat Global Advisors managing partner and head of research Tom Lee. And Tom, as I said, I mean, you nailed everything in 2020.

And you’re out with a new note here to look ahead to 2021, which is very interesting. And I just kind of want to break it down because you focus in on the VIX. And you’ve told us to watch that before as kind of being one of the key indicators in terms of where the market is headed from here. And it sounds like you’re breaking down kind of where the volatility expectations are here in 2021, with investors showing that they’re expecting similar levels of volatility to what we saw play out last year. So what does that mean for the markets when you look at the data?

TOM LEE: Well, yeah, thanks for having me on. The VIX, which is a measure of expected volatility, I think has always provided a lot of good signal for people. And high levels of spot VIX obviously mean people are scared, but what we wrote about was that when you look at the futures market for VIX, because that’s really where more activity is, VIX is expected to be high all the way through September. And if you think about it, that’s a pretty insane level of fear that people are scared for the next nine months.

But what’s interesting is that this level of fear is exactly almost the same level it was throughout all of 2020. So people don’t think anything’s getting better. And that’s how the market is perceiving equities today and the economy. And if you believe things are indeed improving, then you should be buying stocks because the VIX is destined to fall in the next nine months. But another thing that [INAUDIBLE] pointed out was–

ZACK GUZMAN: Yeah, that’s kind of–

TOM LEE: Oh, sorry, I was just–

ZACK GUZMAN: [INAUDIBLE] going to get to it, that second point.

TOM LEE: Yeah, the second point is, if you look at the fact that people think current volatility was higher than future, that’s how 2020 averaged. And people just thought there was always going to be a near term volatility event. In the 12 months after averaging a level like that, stocks do incredibly well. In fact, they’ve never had a down year.

So 2021 is a year where the VIX is unwinding that fear. And historically, the average gain is 23%. So I think stocks have an underlying positive risk reward. And I think that’s how you should approach it. But again, you know, future’s uncertain, COVID’s uncertain. So just keep that in mind. But, again, history says this should be a great year for stocks.

AKIKO FUJITA: Tom, in addition to the equity markets, we always like to come to you to talk about Bitcoin, certainly significant gains that we’ve seen, trading right now well above 41,000. You saw that note out from JPM earlier this week, talking about Bitcoin hitting 146,000. Has your thesis changed at all, given the significant surge that we have seen over the last several weeks?

TOM LEE: You know, I think that the price move in Bitcoin actually is pretty textbook because it’s behaving the way crypto and Bitcoin has acted after previous halvenings, you know, when the block rewards cut in half. And 2017 was a year when Bitcoin last went parabolic. That’s one full year after the halvening.

2021 would pattern itself after that. So if– you know, the fact that Bitcoin’s doubled almost in 10 days, and I think the JPMorgan numbers are not that far off– I mean, I’m not sure I’d be that precise with, you know, 146,000. But I think Bitcoin, it looks like 2017 will be up at least 300% this year.

ZACK GUZMAN: It does seem like an oddly precise price target there, too. I mean, you guys had 40,000. We’re already above that now. You said that it could quadruple. That would put it above 100,000 here at some point in 2021. So, I mean, continue that trend. We’ve talked about volatility in Bitcoin and how quickly it can move south here. So, I mean, obviously, it’s not expected to be a straight up and to the right chart, or is it? Maybe– how should investors be looking at it?

TOM LEE: Yeah, it’s a hyper volatile asset. You know, again, I just point out the future’s uncertain. But our road map for risk assets this year is that stocks would be pretty explosive out of the gate and peak in sometime either in late January, but as late as April around S&P 4,000 before a big drawdown happens. I think Bitcoin is going to– if the S&P falls 10%, Bitcoin is going to have a huge drawdown. It could be down 40%, 50%. So I don’t think it’s a straight up with a ruler. It’s going to be pretty jagged, but I think at the end of the year, Bitcoin is much higher.

AKIKO FUJITA: Did you say it could be down as much as 40%?

TOM LEE: Yes, but that’s a pretty typical correction for crypto. In fact, I think last year, it had a couple of drawdowns nearly that size. So, that’s what you get with a permissionless blockchain and experiencing hyper growth and adoption.

ZACK GUZMAN: I mean, you talk about kind of this risk, you know, the trigger that we’re expected to see in the first half of 2021 that could spark this correction. A lot of people were wondering if that was going to be, you know, the outcome of the Democratic wins in Georgia. It doesn’t seem to be, based on the market reaction we’re seeing play out now.

So when you look ahead, I guess, our attention turns back to kind of the vaccine rollout. You have your eyes on Israel to see how things are going over there. But what’s kind of your next judgment of what could trigger maybe that correction you see on the horizon and what investors should be watching now?

TOM LEE: Yeah, I mean, but foremost, it was never our view that the Senate race would have any impact on markets. I think that’s someone’s imaginary shouting at the market to do something. And so, I think that if there’s something that’s going to scare markets, it’s kind of what you said. It would be the risk that the pandemic looks like we’re losing ground.

I mean, right now, there’s millions of people getting vaccinated. And hopefully, that leads to a slowdown in infection. So that’s why we’re watching Israel closely because Israel is the furthest along with percentage of the population. And so, presumably, if cases start to slow, that’s good. But if they don’t, I don’t know. I think that would be very worrisome.

The other thing is, you know, the yield curve, which has really great predictive power on what the PMIs will do, the yield curve is saying that PMIs are potentially going to be peaking this month in January and then fall through May. And I think that that move towards 50 on the ISMs could make people think we’re heading towards a recession. And that could be a reason for stocks to sell off. But the market’s unpredictable.

But, again, I just want to be clear. Nobody at Fundstrat thought the Senate race would have any bearing on markets, even if people were sitting on cash. In fact, I would countertrade that and say that’s one reason we thought the markets would be explosive out of the gates.

AKIKO FUJITA: Tom, I want to follow up on that point you just made about the virus itself and the spread that if, in fact, it felt like we’re sort of losing control, I mean, you could argue, if we’re following sort of what the health community is saying, this is about the worst that we’re seeing in terms of the surge, things likely to get worse at a time when there are some signs that the vaccine rollout may not happen as rapidly as we initially thought.

How are you following the numbers here in the US? And how has the outlook on that front changed for you at all when you look at how slow the inoculations have actually gone in the first month of this vaccine?

TOM LEE: Yeah, I mean, CDC is releasing the data daily. And our data science team is pulling that data. And so, we have a good real-time snapshot. It comes out at 9:00 AM every day. I actually think the vaccine– vaccinations are ramping up pretty dramatically. I mean, yesterday, they were 30% above the day before. And the pace is around 500,000 now. It’s probably going to hit a million next week. And that would get to roughly 30% of Americans being vaccinated by April. And that’s also when the winter kind of ends and COVID, hopefully, is retreating.

So, I think, you know, it’s a mistake to think that out of the gates, if the vaccines are choppy now, and that’s– a lot of it’s state implementation. It’s not– it’s going to look like that in April. I’m sure it’s going to ramp up. Look what happened with testing in the US. I mean, now the US has carpet bombed with testing. And in the beginning, it was slow. So, I’m not that worried about it. But yeah, if COVID mutates or if the vaccine doesn’t work, that would be very worrisome.

AKIKO FUJITA: Tom Lee, always good to get your perspective here on the show. Fundstrat Global Advisors managing partner and head of research.



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