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Let's now invite another speaker who believes that September may bring more optimism to investors, but risks may appear later. This is the already mentioned Tom Lee, head of research at Fundstrat Global Advisors, CNBC contributor and author of daily notes. A material worth reading, as many of Tom's followers on social media know.
I often quote your works, especially in the evening. We talk about companies and trends in this area . You tirelessly do a wonderful job. So, you heard our conversation about history. Marie Antoinette aside, what are your thoughts on history, market trends, and where we're headed—or are we " beheading ourselves"?
Oh, oh, we're being beheaded. Terrible. Ahem. I think it's beautiful. I think the markets can scare everyone, as we are already up 20% year-to-date, even though we are still in a pandemic. But the fundamentals remain very strong and I think there is a lot of pent-up demand. So what makes me constructive is the many new highs in August, and I find these statistics very relevant, despite the general caution .
Most of our clients agree with what everyone here is saying. You know, we're overheated, the market is overbought, and nothing is cheap. And, as you know, when everyone is looking for a peak, that's when the markets can surprise you, because we are in the middle of a " wall of fear." So I'm one of those who thinks September could surprise people because, despite seasonal predictions of a September decline, when the market is up more than 13% in the first half of the year, September is usually one of the strongest months of the year.
So I think we could see a pretty dramatic rally in the middle of the "wall of fear " in September, because clearly there's a lot of cause for concern. Yes, and you know, these statistics that we show here can be viewed from two angles. September saw the worst average performance since 1945, a drop of 0.6% .
But, as Josh Brown pointed out in today's halftime report, Tom, that number can be somewhat misinterpreted. Yes, if we say that September is the worst month, it's usually because that's when we had the biggest catastrophic falls. In other words, in nine out of ten cases it shows good results. But the problem is that in that tenth year, when such a big collapse happens, it ruins all the averages, right?
We know how averages work . Of course. You also have a price target for the S&P 500, which I do n't think is even a target, but you think September will be higher than the end of the year. In other words, do you think the market will hit its highs for the year next month? Uh, that's quite possible .
Um, I think, you know, our year-end target is 4,600 for the S&P, and I think we can get closer to 4,650 this month, in September. But, uh, the reason I think it's possible is because there are certain obstacles. You know, one of them is the end of the moratorium on evictions and mortgage foreclosures, so we need to see how that actually affects the economy.
But, you know, there will be people who, well, will be left homeless. And then, we don't know what the fall wave of COVID will look like, although, uh, you know, the base case scenario is still that this wave that we're in right now is actually the worst for the fall. And if that's the case, the market could continue its rally.
But those are two uncertainties, and of course the third is the potential tapering of Fed stimulus. And, you know, despite the fact that, in my opinion , many people think that the market already takes this into account, I don't think so. I think there will be a lot of turbulence when the stimulus rollback happens.
So, there are a lot of things to worry about after September, but I think in the September we have now, people are cautious. They believe we will have a recession. Uh, contrary to seasonality, you know, when markets are strong in the first half of the year, September is actually one of the best months, up two- thirds of the time, and it's one of the strongest months in terms of median returns.
So, I think that's why we can add at least 100 points this month. Hey Tom, Tim, so positioning and the " wall of fear" are the reasons why you're optimistic about September. You talked about pent-up demand and generally, you know, where you still see significant upside . But, you know, small- cap companies (IWM), when you look at the industrial sector and even transportation, and even some of the more cyclical names, whether in industrials or energy, they haven't performed .
We expressed our concern about the lack of market breadth and the fact that NASDAQ is actually holding onto only five stocks. Um, how do you reconcile that if the world is such a worthy place for broader investment? Uh , yes. Well, our team has been studying it " under the hood," including the tireless Ken, who had a baby today.
Um , congratulations Ken. But, uh, congratulations. Yes. Ovva. There is one measure of strength —the percentage of stocks above the 50-day and 200- day moving averages. So they are both in a positive short-term and long-term trend. And the groups that you mention: cyclicals , you know, industrials, materials, energy—they're showing the most growth.
So I think they're actually coming back into trend, more stocks within the energy sector. So, although the energy index has fallen, there is actually an increase in strength. And if you look at the S&P 500 lead-lag line, it hit a new high at the same time as the S&P made new highs. So it wasn't a large- cap driven index.
It was a broad participation. In fact, you know, comparing the July highs to the August highs, most of these gains were in the epicenter stocks. So I think you had an expansion of participation, even though FANG is growing, and again, we like FANG because a lot of them, like Amazon, Apple, Netflix, they've been lagging the market since the beginning of the year.
I think they will catch up by the end of the year. So I like everything. I believe this is a general rally. And very quickly, since we are waiting for a new note, by the way. Congratulations to the tireless one. Ken...he will check it out " tirelessly" if he just became a father, and his family with the birth of a child.
I saw a headline that COVID cases were down by 10,000 on average every 7 days compared to the last week. There are some positives , I know it's hard. I know many people are suffering, but we are seeing some positive trends. Isn't that short? Yes. Uh, yes, definitely, Brian. You know, one of the things is that Delta is so contagious and spreads so quickly, and it's scary, but it takes about 50 days in every region that it infects .
And Florida is a great example. In Florida, almost every county is seeing cases drop precipitously right now, and we're seeing it in many states like Missouri, Alabama, you know, Louisiana, which of course was hit hard by the hurricane. So, I think you're seeing more and more states experiencing this downturn, and hopefully if that continues, then inflation in the US will recede, and that will be good news.
Yes, let's hope that this is the way to go . Tom Lee , we look forward to your report tonight . Always a must- read. Congratulations Ken. Tom, thank you very much. Okay, Karen, let's get down to business, and let's start with you. We have already talked to you a little about energy. Tom is optimistic.
But over the past couple of months, things haven't gone as well as he had hoped. Oil stocks also seem unable to get back on track. Do you believe in anything in the energy sector? I'm asking for a friend. Yes, I believe. I don't have a very large share, but I have a little bit of OIH because I wanted to have a broad reach.
I know that balance sheets are better than they were and the sector is in better shape overall, but I just wanted to see a bigger shift in sentiment. So, I have some stake in OIH, but it's not a large position. Yes. And as for Tom's words, he talks a lot about OIH, that the oil price is here and OIH is there, and something is disconnected here. Karen, thank you very much.
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