Fundstrat’s Tom Lee explains why he expects a ‘face-ripper rally’ in April

Investing

Tom Lee said Monday he expects the stock market’s strong start to April to continue throughout the month as part of what he’s previously dubbed a “face-ripper rally.”

The co-founder of Fundstrat Global Advisors made his case in an interview on CNBC’s “Fast Money,” following the S&P 500‘s 1.4% gain Monday to notch a record close of 4,077.91.

“Institutions raised almost $200 billion of cash since the start of the year, so they’ve turned quite cautious, and they’ve been fading or selling their tech and growth holdings but they’ve only just begun to nibble on the … epicenter [stocks],” said Lee, whose firm considers those to be companies that were among the hardest-hit in the pandemic but stand to gain from the economic recovery.

“So, I think there’s a level of surprise coming in April because we already had a strong finish beginning Wednesday of last week. It’s really three days of strong rallies and history shows this is really building up to be what could be a, potentially, S&P 4,200 before the end of the month,” Lee said.

The broad equity index reaching that level would represent roughly 3% upside from Monday’s close.

Additionally, Lee said it would make the April rally “something that is both really strong but, more importantly, quite a big surprise for institutions.”

As for what happens after a so-called face-ripper rally, Lee said there could be a period of choppy trading.

“I think if the S&P does in fact rally strongly this month at a time when institutions are sitting on so much cash and there’s so much skepticism on this market, we could see a big chase and that could mark the high for the year,” he said. “I wouldn’t say that’s our base case, but yes, we would have to consolidate these gains.”

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