Tom Lee Just Said The UNTHINKABLE

So, this is incredible. Tom Lee, one of the best analysts in the business, just released a new prediction that is sending shockwaves through Wall Street, through the entire stock market. He literally said the unthinkable. Now, we have to talk about it. We have to analyze it. We have to break it apart so we understand exactly what's going on, which is exactly what we're going to do in this video. So don't click nothing. Don't smash nothing. Don't buy nothing. The first thing I'm going to do, ahead of everything else, is going to give you the highlights of what exactly he said. I'm going to show you the clip, then I'll summarize it in my own understanding for a few minutes, and then I'll give you the analysis. And at the end, I'll share with you my strategy for the next six and 12 months based on what he said and what I'm thinking about as far as portfolio moves and strategies and all that good stuff. But first thing first, we have to watch the clip ahead of everything else. We have to hear it from Tom Lee in his own words. Let's hit it. I think the biggest tailwind that's going to emerge in the next couple of weeks is around central bank. The Fed is set to cut in December, but also today is the day that quantitative tightening ends. And as you know, the Fed's been shrinking its balance sheet since April 2022. It's been a pretty big headwind for market liquidity. The last time we had an end to QT, quantitative tightening, was September 2019. And if you look back at that period, the markets really responded well. I think within three weeks, rallied more than 17%. So I do think the timing of QT ending, which is now essentially QE starting in the Fed and at a time when November kind of was topsy-turvy. So I think people got cautious, but now have to performance chase. And then you have a really typically a seasonal tailwind. So I'm pretty bullish into December, even with maybe the first day being rocky. To me, the fact that claims have been behaving and the September jobs report kind of showed a bit of a recovery. I think the labor market's probably holding fine, but the Fed doesn't want that to worsen. But I think the inflation story has actually weakened a lot. So to me, the Fed would be cutting for the right reasons, which is as they look at the next 12 months, the tariff inflation impacts are fading, but there's risk on the job market. So I think it's cutting for the right reason, which is real rates are tightening if they don't cut. And I think that there was essentially a reset in November because the market had a 6% decline, but the AI stocks and the meme names and a lot of other names fell even more. So I think that that position reset has been healthy. And I think many fund managers we talked to in November in the midst of all that kind of threw in the towel, thought the rest of the year was sort of a write off. And now if December is strong, there's going to be a bit of performance chasing. And I think that's what you should typically expect in the final weeks of the year. From here, I think 5% or maybe even 10% is possible in December. So I think a 7200, 7300 is likely for S&P. So Tom Lee makes five important points here, which I'm going to cover right now. Number one, he is bullish about the market going into the end of the year. And that is based on point number two, which is that despite all the volatility we've seen, we're heading into another bull run, another bull cycle, because the Fed is about to cut. That cut is happening as a part of a major policy change going from quantitative tightening to quantitative easing. And when you change the hawkishness into dovishness as a matter of policy for the Fed, that's a massive tailwind for the market as long as the economy is actually doing well and the economy is doing well. On top of that, Tom Lee is also saying that the jig is up. The professional money managers that have been basically sitting on the sideline have no more time left. There's about 30 more days for them to jump into the market, take advantage of this bull run before they will have to answer to some really important people who have seen their portfolios underperform because the so-called professional money managers have been sitting on the sideline. And of course, he's also talking about the fact that the correction we've seen over the past few weeks, the little turbulence we had is actually very healthy. But beyond being healthy, being normal, it's a good setup for another bull run. Every time we have a bull run, we have a little bit of correction ahead of that. So basically he's saying we're going to see another five to 10 percent of increase on the S&P 500 from this point till the end of the year. His main argument is basically the fact that the Fed has two modes of operation, only two. They either are in quantitative tightening, where they're increasing rates and where they're actually selling off balance sheet in order to reduce the amount of money in the market. And there's mode number two, where they are decreasing the rates and buying up bonds in the free market, increasing their balance sheet to flood the market with more money. It's either the tightening mode or the easing mode. Essentially, up until this point, since 2021, late 2021, we have been in a tightening mode. The Fed increased rates from almost zero to five percent. And right now we only had minor cuts so far. Tom Lee's argument is that if we have a cut this month, this cut is going to finalize the fact that the Fed has switched gears and is not just that once for a cut, but actually is changing from tightening to the easing mode. And that is a massive, massive signal for the market to go on a stampede historically, statistically, but also fundamentally. That's what happens when you flood the market with so much money by decreasing rates and by increasing your balance sheet. It is inevitable that the market is going to go up. The problem on the other side might be inflation. But if inflation is under control and if the economy is fundamentally sound, then, yes, that certainly leads to that conclusion that Tom Lee has a good point. Looking at the current data on the inflation on CPI, we're very much in a good place looking at the job market. Yeah, it's not perfect, but it is holding up nicely. So macroeconomics so far are good. So when we're heading into a quantitative easing cycle from the Fed into a decent economy, yes, historically speaking, that usually leads to a bull market and a bull run, just like Tom Lee is saying. He's not wrong about this. The only question is if that's indeed the case, if indeed the foundations of the economy are strong and if indeed we're heading there right now by going into easing because the Fed wants to, not because the Fed has to. Sometimes the Fed has to cut rates and start buying up bonds because the economy is falling apart, trying to bail it out. But it almost never works. And the economy actually falls into recession. OK, that basically is the worst case scenario. Tom Lee is saying, look, right now, that's not the case. The Fed doesn't have to do it. They're doing it ahead of time, which means that we're getting an influx of money into the economy and the economy is still doing well, which means the economy is going to do well. The job market is going to do well. Inflation is quite low, so it's not going to go out of control. And as a result of that, as a derivative of that, the stock market is going to do very, very well. Now, his second point is about the fact that a lot of people who manage big money, we're talking about tens, hundreds of billions of dollars under management by people whose whole job is essentially to beat the index and have not been doing so for the past three years, underperforming and 90 percent index over the past three years. Their time is running out. They have no choice. They got about 30 days to jump and maybe less before the feed hit the shan. And they got to go and give some answers to people with a lot of money, people who take no BS from anyone and who are not very nice. It's all clean business. And when he's saying that, essentially saying the game of chicken is up unless the market starts tumbling down and they essentially get to stay on the sideline, they will have to jump in. That process is going to cause a cascade. Some sort of a snowball reaction where more money goes in because more money goes in and essentially drives the market another five to 10 percent in about a month. That's not an unreasonable thing to say. That certainly makes a lot of sense to me. And knowing how these rich people manage their money. Yes. Usually the end of the year is where you're being judged on your annual performance. And if you've been sitting on the sideline for the past two years and you've missed out on this market, you're certainly not going to keep your job. You're not going to keep the account. Tom Lee is on point. Now, the third point he makes is very important. He says that we have a target of about seventy five hundred on the S&P 500 towards the end of the year. Now, that's a massive leap from where we are right now in less than a month. To be honest, that is abnormal. It is an outlier, but it's not unheard of. It happened before. And in fact, if the conditions are set the way we think they are based on what Tom Lee just said and based on what we just analyzed, it's certainly possible. Now, is it a guarantee? No, I don't think even Tom Lee is intending to guarantee that it certainly is a possibility. And at this point, it seems like a reasonable possibility. Now, the thing to remember here is I wouldn't make any predictions based on what Tom Lee just saying. And I wouldn't try to time the market at all. I think it's just silly because at the end of the day, when you make these bets, you never know what the market is going to do. A lot of people have been on this platform talking about how 2022 is about to be the most horrible year in history, about how 2021 was just an outlier. Over the past five years, the market has gone from twenty three hundred to sixty eight hundred. That's the S&P 500. So these spikes can happen. My whole thing is look at the larger time frame. Don't look at the 30 day or the six month. It's almost random. It's almost gambling. Now, Tom Lee is dealing with this because it's interesting and it's kind of like a gamified version of, you know, anthropological analysis looking what the market is going to do. But even Tom Lee is not making any timing the market bets. He's playing the long game. He's playing the good companies, which I think is what you should do. It's OK to analyze the macro. It's OK to think about, oh, where we might be. But I wouldn't make any investing decisions based on what Tom Lee said might happen in the next 30 days. So basically, Tom Lee is putting out a three pronged argument here. Number one is that the Fed is heading into a quantitative easing and it's happening while the economy is in a good shape. Number two is that the game of chicken between the professional money managers and the market is running out. It's getting to a point where they got to make a shot and they're losing. And number three is that seasonality, basically December being an extremely strong month historically in the market. All these components basically combined to what seems to be a very plausible argument that December ends up being a really, really good month for the market this year. My take on the Fed currently, I don't think we're going from pressing the brake into pressing the accelerator. Even on your car. First, you have to take your foot off the brake. Then you put it on the accelerator. It doesn't happen at the same time. I think right now, going into December, if we get another cut, yes, it certainly points to the fact that the Fed is taking the foot off the brake, but it's not yet at full acceleration QE mode. For that, we have to wait another couple of months, another few cuts for us to be sure that number two, whatever happens, even though Tom Lee is saying 7500, even though I sound bullish in this video, you have to prepare for volatility. No matter what happens, you have to be ready for whatever the market is going to present to you. Don't forget, all these arguments might be valid, but the market can remain irrational and crazy a lot longer than you can stay solvent. You have to be ready for the opposite of what Tom Lee is saying, even though if you think it is the truth or some sort of a really, really good prediction, which I think it is, but you have to be always ready for the flip side. At the end of the day, it's going to come down to the economy. If the economy is solid the way we think it is, as far as the job market, as far as the GDP growth, as far as all this other macro data that's circling around, if the economy is good, most likely Tom Lee is right. And we're heading into another bullish cycle, but we won't know how good the economy is until the rubber meets the road, which remains to be seen. So that's why you have to have a smart process. You have to know what you're doing in this market. Now, I'm going to share with you my process for the next six to 12 months on how I pick stocks which are suitable for my portfolio, given what's going on right now in the market, given the fact that we went through three years of extra, extra bullish market, given the high position in the market now, all the fear, everything Tom Lee said, that's it. So basically, I'm going to share with you a 14 step process I think you should do before you buy any stock right now. Number one, you have to define the game plan, define your constitution, who you are, what kind of a game you're playing, where's the goals, how do you score points? All these things, they happen in sports, they have to happen in your investing journey. Are you a long term investor? Which kind of stocks you want to invest in, et cetera, et cetera, et cetera. Set your constitution before you go out there and try to buy and sell stocks. Number two, before you buy any stock, you have to do a sanity check. You have to check if the stock is actually growing in revenues, if it actually has profits, if it's actually fundamentally a good company. Too many companies right now in the market are leading the pack with absolutely trash fundamentals. Never, never buy a stock just purely based on the blue sky story. It has to have the fundamentals to back it up. Number three, unless you're able to define what the company does and the business model and how it makes money in one sentence, you don't buy the stock. You have to be able to make that definition. And trust me, it's not as easy as it sounds. Then next up, number four, you have to understand what is the total adjustable market of this company. Sometimes you'll do that and you'll find out it's a niche product. There's not enough meat on the bone. Number five, you have to understand each of the revenue engines of this business. If you don't understand it, you don't invest. Next up, you have to look at the financial history of the company. Look through the financials, look through the numbers, see what's going on with this company over the course of the past five years. Next up, you have to treat it as if you're the loan officer in the bank and these guys are coming to ask you for a loan. You're going to look at how much money they owe, how much cash they have, what kind of securities and collateral they have. Look at the balance sheet. Next up, number eight, what kind of a moat they have, how much defense they have against competition taking their business. It could be patents, could be a client list, networking effects, a million different things. Number nine, the quality of management has to be there at this list. You never invest in a stock where the management is an elite, where it's not superstars. Number ten, you have to then do a complete risk evaluation on the company and pretend as if now you absolutely hate it and write a whole bare thesis on this company as if you're absolutely the worst hater of this company and then see if you still want it after you do that. Number eleven, you have to run the valuation using at least two different models. You can do a DCF or some sort of a multiple, an EBITDA multiple, a price to sales, a price to earnings. Number twelve, you create scenarios, your bear case, your medium case, your bull case, and you see, hey, would I still want this company if the bear case pans out? Because if the bear case doesn't satisfy you, you should not invest. I only invest in stocks where I say even if the bear case happens, I still want this stock. Number thirteen, you have to look at your portfolio sizing. You have to understand, hey, how much percent I want in stocks, how much S&P 500, how much in bonds. This will have to be decided in advance. And finally, all of these have to be done again every single quarter where you go and monitor all of your stocks and make sure they still meet the criteria to be in your portfolio. If you follow this process, if you be methodical, if you don't run around like a headless chicken following trends and following meme stocks and all this garbage and you just buy good companies using this process to select, using the DCA double down method, which we teach in the academy to buy at all times and increase your buys when it's down. Using all of these parameters, you will be fine. Now, we have a lecture exactly on this process on how to select the stock, kind of a two hour deep dive into what I just explained with the 14 steps. If you want to get access to that, go to patreon.com forward slash domnesh, join the academy. You'll get access to this lecture plus 75 recorded lectures we've already done. Plus every week you'll get to sit with me live, ask me questions and participate in our weekly lectures, plus office hours once per week, plus our discord. And at the end of the day, you'll become a better long term investor. And like all this other Yahoo's running around doing what we basically define as gambling. If you want to stop being a gambler, become a better long term investor. This is the place for you. We would love to see you later.