The stock market may nearly triple by the end of the decade, according to Fundstrat's Tom Lee.
In a recent interview on Bloomberg's Odd Lots podcast, Lee projected that the S&P 500 could trade approximately 175% higher from current levels, reaching 15,000 by 2030.
"In a normalized world, following demographic trends, the S&P 500 should potentially hit 15,000 by the end of the decade," Lee said. He emphasized that a longer timeframe supports this optimistic outlook.
Lee's bullish forecast is underpinned by sustained earnings growth and an expanding stock market valuation multiple. He explained his projection in detail during the interview.
"It's roughly a 20% annual price appreciation," Lee said. "Earnings growth would contribute 12% to 15% of that total, with the remaining 5% per year coming from PE expansion." The price-to-earnings (PE) ratio, a popular valuation measure, is key to his forecast.
While a 5% annual growth in the valuation multiple might seem ambitious, Lee argued that stocks deserve this premium, particularly after the resilience shown during the COVID-19 pandemic.
"COVID proved that businesses are more resilient than we realized. We shouldn't assign the same PE to them as before, knowing that they managed earnings despite global economic shutdowns, high unemployment, and supply chain disruptions. I believe the multiple can grow at a higher rate than 5%," Lee said.
Lee also identified two thematic factors that could drive the stock market's long-term growth: millennials and a global labor shortage.
"One thematic driver is millennials. Since 2018, we've highlighted how millennials, the largest generation, are reshaping the economy, particularly through fintech and changing preferences. A significant generational wealth transfer of up to $80 trillion is also underway," Lee said.
"The second factor is a global labor shortage, which began in 2015 and will persist until 2035. Previous instances of global labor shortages led to significant growth in technology stocks," Lee added.
Lee's labor shortage projection is based on global demographic trends, with prime-age workers not replacing older generations quickly enough.
This demographic shift means companies will increasingly turn to technology and automation to bridge the gap in prime-age workers, investing trillions of dollars in silicon-based technologies that enable robotics and artificial intelligence.
Lee has consistently maintained a bullish view on the stock market, and his predictions have been accurate.
At the start of June, he forecasted that the S&P 500 could reach 5,500 by the end of the month. With one week left, it’s trading at about 5,485, just 15 points shy of his short-term target.
