- An "everything rally" could take hold in the stock market if COVID-19 cases retreat, Fundstrat's Tom Lee said in a note on Tuesday.
- "We continue to expect an everything rallies in 2H2021, as the peaking of this Delta wave will be a sigh of relief," Lee explained.
- To take advantage of a potential rally, Lee upgraded financial stocks to Overweight from Neutral.
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US stocks could experience an "everything rally" if COVID-19 cases retreat later this fall, Fundstrat's Tom Lee said in a note on Tuesday.
Lee reasoned that most investors expect another surge in COVID-19 cases later this year, even after the ongoing Delta case surge. But if that surge doesn't materialize, and if the current Delta surge begins to retreat, investors will breathe a sigh of relief and buy stocks, according to Lee.
"We continue to expect an everything rallies in 2H2021, as the peaking of this Delta wave will be a sigh of relief. And moreover, there is decreasing probabilities of a fall surge. As such, this would be a positive surprise for markets," Lee said.
Lee is confident that COVID cases may retreat going into year-end due to IHME's forecast that cases will peak in the US this week, as well as the fact that the current Delta wave is mostly infecting people who are not vaccinated, which gets the country closer to herd immunity.
"This Delta wave might get us to something akin to herd immunity = no fall surge," Lee said.
One sign that an everything rally is beginning to take hold, according to the note, is the recent rally in bitcoin, which has surged more than 50% over the past month. With bitcoin reclaiming its 200-day moving average on Monday, Lee expects the cryptocurrency to surge to $100,000 by year-end.
To take advantage of the potential rally in stocks, Lee upgraded financial stocks to Overweight from Neutral, according to the note.
"We see strong upside to financials. Financials have consolidated in a range for the last two months. But tailwinds are building," Lee said.
Those tailwinds include rising interest rates, strengthening confidence of the economy, and a technical breakout above its recent consolidation range. Lee thinks the Financial Select Sector SPDR ETF can surge 10% into year-end, which would represent greater upside potential than the broader S&P 500.
Lee expects the S&P 500 to jump to 4,600 by year-end, representing potential upside of 4% from current levels.