Fundstrat's Tom Lee sees another 9% run for stocks, says tech bottomed last week

Published Fri, Mar 12 20212:00 PM ESTUpdated Fri, Mar 12 20214:14 PM EST

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

Tom Lee told CNBC on Friday he believes the technology sector likely put in its bottom for the year last week, part of his broader view that the S & P 500 overall has more room to run. "I think tech made its local bottom for the first half. I think tech is going to rally," the Fundstrat Global Advisors said on "Halftime Report," adding later in the interview it could be the sector's low for the year. Lee's firm recently hiked its price target for S & P 500 — which often turns on the fortunes of big tech stocks like Apple — to 4,300 for the first half of the year, which implies about 9% upside from Thursday's then-record close of 3,939. The benchmark index eked out another all-time high Friday , rising 0.1% to 3,943. It had been lower during the session as the 10-year Treasury yield rose to a new one year high above 1.64%. Among the first Wall Street strategists to turn bullish after last year's pandemic-induced sell-off, Lee said he's closely monitoring the bond market and its implications for stocks. However, he said the S & P 500 reaching a new high Thursday after the choppy trading in 2021 was "really important" in forecasting the index's next move. "One thing we have to keep in mind. If you look at the last two periods of consolidation and breakout, you had almost an immediate 10% rally, so that gets us to 4,300," Lee said. "But if we think about where the market is today compared to the start of the year, there's a lot more reasons to be optimistic," he added, pointing to the rollout of Covid vaccinations allowing for a robust economic reopening. Bond yields have risen sharply higher this year, causing equity investors to digest the factors behind the moves such as expectations of a strong economic recovery from the coronavirus pandemic, as well as inflation fears. The tech sector has been hurt by moves in bonds yields, underperforming its cyclical counterparts in energy and financials. High-growth stocks, particularly those in tech, are especially impacted by a jump in interest rates because the relative value of their future earnings decreases, compressing their valuations. Lee has long favored so-called epicenter stocks, which he describes as those that would benefit from a strong economic recovery after struggling mightily during the pandemic. He said he still believes they can help fuel the S & P 500's move higher. But he also believes that tech overall has brighter days ahead, with information technology being the largest sector weighting in the index. There will be variability within technology, he said, predicting cyclical stocks like those in semiconductors will do better than asset-light companies. "I think tech is going to work. It's just that you have to think asset-heavy. By the way, Amazon is an asset-heavy company, as well." "Some of the parts of tech that highly valued, if they do rally, I think a lot of institutions will use it as an escape hatch. Those are the ones they're waiting to get out of. But tech as a sector, I think, has made its bottom," Lee added. Key measures of tech stocks, including the XLK and QQQ exchange traded funds, made their most recent intraday lows last Friday. Lee thinks those have bottomed. The tech-heavy Nasdaq also made a recent intraday low last Friday after it briefly fell into correction territory, defined as 10% below its most recent high. Lee also believes his tech bottom call "would apply to Ark funds as well, the whole Ark complex," he added, referring to the increasingly popular ETFs run by Cathie Wood , who runs Ark Investment Management. Wood has seen strong gains and strong losses betting on what she views as innovation stocks such as Tesla and Zoom Video , which are prone to sharp swings. Wood gained a wide following on Wall Street after her flagship fund returned nearly 150% last year as the Covid pandemic accelerated innovation trends. The fund's asset under management has ballooned to more than $17 billion.

Tom Lee, Co-founder and Fundstat strategist.

Adam Jeffery | CNBC

Tom Lee told CNBC on Friday he believes the technology sector likely put in its bottom for the year last week, part of his broader view that the S&P 500 overall has more room to run.

"I think tech made its local bottom for the first half. I think tech is going to rally," the Fundstrat Global Advisors said on "Halftime Report," adding later in the interview it could be the sector's low for the year.

Lee's firm recently hiked its price target for S&P 500 — which often turns on the fortunes of big tech stocks like Apple — to 4,300 for the first half of the year, which implies about 9% upside from Thursday's then-record close of 3,939. The benchmark index eked out another all-time high Friday, rising 0.1% to 3,943. It had been lower during the session as the 10-year Treasury yield rose to a new one year high above 1.64%.