• The S&P 500 could surge 16% in 2022 to 5,600, according to a note from Fundstrat’s Tom Lee.
  • He pointed out that since 1938, returns have been strong for stocks in the year after a 27% gain.
  • “Our S&P 500 5,100 by year-end 2022 target looks conservative, but we also expect plenty of turbulence,” Lee said.
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Strength in the stock market after a solid 2021 is likely to continue into next year, as momentum continues to drive equities higher, according to Fundstrat’s Tom lee.

He has already set a S&P 500 price target of 5,100 by the end of 2022, representing potential upside of about 7% from Tuesday’s close. But that estimate could be too conservative, according to a Wednesday note from Fundstrat.

With the S&P 500 up nearly 30% in 2021, a historical analysis of past market returns suggests gains could extend higher into next year. Since 1938, the stock market has generated an average and median annual gain of 12% and 16%, respectively, in the year following a rise of at least 27%, according to Lee.

Those potential gains would send the S&P 500 to between 5,400 and 5,600. “Most years post +27% gains are actually very good…thus, we believe our base case of S&P 500 5,100 is conservative,” he said.

The rise in stocks isn’t just being driven by momentum. It’s also being buoyed by a strong economic backdrop and rising corporate profits. “The rise in equities, in our view, has been justified by the substantial economic resilience coupled with tremendous operating leverage of businesses,” Lee explained.

Still, despite the bright outlook, the Fundstrat team is expecting significant turbulence in 2022, especially in the first half of the year. That’s because COVID cases could remain elevated, supply-chain glitches may persist, mid-term elections could contribute to uncertainty, and the Fed is on the verge of raising interest rates.

The question to Lee remains that if those risks are obvious, have they already been discounted by investors?

Whether they have or not, a 2022 gain of “+12% to +16% probably more appropriate,” Lee said.