Tom Lee says rising retail interest won't mark a market top, could be the start of a long-term trend

Published Thu, Feb 11 20213:43 PM ESTUpdated Thu, Feb 11 20213:50 PM EST

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

(This story is for CNBC Pro subscribers only.) Fundstrat Global Advisors co-founder Tom Lee told CNBC Thursday he was not concerned about the rise of retail investors putting money into the U.S. stock market. In an interview on "Power Lunch," Lee emphasized that the previous decade has been characterized by large inflows in bonds despite the bull market in stocks. "Now we start to see retail investors getting interested in equities in 2020, and just because they're just starting to buy stocks, I don't know why we should say, 'This is the top,'" Lee said. "This could be the first year out of ten years where there's real inflows [into stocks]." Lee's comments Thursday come after a few weeks of wild trading activity on Wall Street, particularly in stocks such as GameStop that have been favored by amateur traders who have congregated on sites like Reddit. The beleaguered video-game retailer was ensnared in an epic short squeeze that saw its stock rise 1,625% in January alone. The GameStop frenzy has largely come to an end , with the stock trading below $50 Thursday after an intraday high of $483 last month. But Redditors have shifted there focus elsewhere, such as a cohort of cannabis stocks . Enthusiasm around special purpose acquisition companies also has persisted in 2021 after a proliferation of the blank-check firms last year. CNBC's Jim Cramer pointed to the SPAC craze Wednesday night on "Mad Money," when he contended the stock is on "a highway to the danger zone." Lee, who also serves as Fundstrat's head of research , acknowledged there are parts of the market getting a little overheated. But he said it's not enough for him to take a bearish stance more broadly. "If there was 30% of the stock market in insane territory and they were gaping up 10% a day, then that's pretty scary. But the aggregate market cap of everything that looks frothy is a tiny, tiny percentage of the stock market," said Lee, the chief equity strategist at JPMorgan from 2007 to 2014. Lee said he believes investors will be able to generate solid returns this year in the so-called epicenter stocks . Those are companies that have been negatively impacted by the coronavirus pandemic, such as airlines and travel firms, but would stand to benefit from widespread vaccinations and an economic recovery. While many epicenter stocks may no longer be at their pandemic-era lows, Lee said he sees further upside, especially for companies that reduced their cost structure. That creates an opportunity for "true operating leverage" to boost bottom-line earnings as top-line revenues recover, he contended. "I think in a way people are overly bearish because they're like, 'Stocks, wherever they traded in 2019, is where I'm going to fade them,'" Lee said. "But if these companies have cut their costs and now we have pent-up demand and a GDP recovery and then lower cost of capital, they should be blowing through their prior highs," he said. "I think that's the opportunity because many are still 50% to 75% below their all-time highs."

A person walks at the Wall Street subway stop in New York City.

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(This story is for CNBC Pro subscribers only.)

Fundstrat Global Advisors co-founder Tom Lee told CNBC Thursday he was not concerned about the rise of retail investors putting money into the U.S. stock market.

In an interview on "Power Lunch," Lee emphasized that the previous decade has been characterized by large inflows in bonds despite the bull market in stocks.

"Now we start to see retail investors getting interested in equities in 2020, and just because they're just starting to buy stocks, I don't know why we should say, 'This is the top,'" Lee said. "This could be the first year out of ten years where there's real inflows [into stocks]."