Market bull Tom Lee lists three popular election scenarios, predicts rally in each one

Finance

Fundstrat Global Advisors Tom Lee is calling for stocks to rally into year-end.

It’s not dependent on any single election outcome. Rather, it takes into account three widely-talked about scenarios.

Lee’s base case: Joe Biden wins with a blue wave due to his strength in the polls and betting markets.

“That rally is roughly 10%,” the firms’ co-founder and head of research told CNBC’s “Trading Nation” on Monday.

With the S&P 500 around 8% from its all-time high of 3,588, Lee’s prediction implies the index would be trading in record territory going into 2021.

In that scenario, he sees cyclical stocks fairing the best on the expectation Biden would help get a significant coronavirus aid stimulus passed.

But, Lee warns big tech stocks would face pressure in a Biden administration. He lists risks linked to Biden’s capital gains tax policies and regulation as a chief reasons.

Lee’s second scenario is a Donald Trump surprise win and an even bigger gain.

“The rally would actually be larger — 15 to 17%,” he said. “You’re taxing tax increases off the table. You’re taking… regulation off the table, and I think you’re taking the threat of lockdowns off the table.”

If the S&P 500 rallies that far, it would reach as high as 3,872.

“I think tech rallies and cyclicals rally big. That’s how you get to 15 to 17 [%],” said Lee. “The economy is better than most people perceive.”

His third scenario is a contested election.

“I still think you get a 5 or 7% rally because, foremost, we’re still going to have now the winner open to do some stimulus,” noted Lee, who added it would ameliorate market concerns.

In a contested election, he expects the outcome to be settled within days — not weeks or months. So, Lee contends it wouldn’t contribute to uncertainty.

Plus, he sees advancements in coronavirus treatments contributing to his optimism going into the final stretch of the year and beyond.

“As we think of the next three to six months, therapeutics and a cure are going to be important,” Lee said.

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