After being one of the very few Wall Street strategists to be consistently bullish this year even during the uncertainty around the election, Fundstrat's Tom Lee reiterated his positive stance as he compared President-elect Donald Trump to two previous Republican administrations with strong economic records.
"Trump looks to be both an 'inflation' and 'de-regulation' president—In our view, Trump is likely a bit of both Eisenhower and Reagan," Lee wrote in a note to clients Wednesday.
"Notably, the two longest bull markets in history 1953-1974 and 1982-1999 were preceded by a Republican 'revolution'—Eisenhower (1952) brought infrastructure spend. Reagan (1980) saw tax cuts and de-regulation."
Lee said high inflation and rising interest rates will "encourage business and consumer behavior towards longer-term spending and investments." He estimated if fixed investment percent of GDP rose from 23.5 percent to 27 percent under Trump (approximately the highs of the 1950s and 1980s), it would unleash an incremental $700 billion of new investment spending annually. Over a decade, that will lead to $3.5 trillion of more GDP growth, according to the strategist.
And as Trump's big spending projects lead to higher interest rates, Lee said it will reverse the $2 trillion rotation out of U.S. equities in the past 10 years. He predicts flows will return to domestic stocks by at least $400 billion a year during the next 10 years.
"Investors need to focus on laggards ... small-caps ... value — strategies we have argued all year," he wrote.
Here are five stocks in Fundstrat's "Laggards become Leaders" (stocks in sectors that underperformed during the last four years) recommended strategy basket to take advantage of the bullish call.