Fundstrat's Tom Lee, renowned for his accurate stock market outlook for 2023, is once again predicting a positive year ahead for the stock market. Lee's forecast for 2024 includes a S&P 500 price target of 5,200 by year-end, representing a potential upside of 9% from current levels.

In his 2023 stock market outlook, Lee successfully predicted that the S&P 500 would reach 4,750, coming within 1% of its current level. As investors were recovering from a challenging 2022 bear market, Lee's optimistic forecast raised many eyebrows. However, his projections materialized, with the S&P 500 soaring 25% to its current level of about 4,785.

For the year 2024, Lee expects the easing of financial conditions to be the key driver of further stock market gains. The Federal Reserve's indication of a potential interest rate cut rather than a hike, along with the anticipation of at least five 25-basis-point rate cuts in the market, contributes to this positive outlook. Lower interest rates are expected to lead to reduced mortgage rates, revitalizing the housing market, and potentially boosting consumers' purchasing power as inflation continues to fall.

Lee projects an 11% growth in earnings-per-share for the S&P 500 in 2024, reaching $240. Looking ahead to 2025, he predicts an additional 8% growth to $260, mainly driven by a cyclical recovery in profits. The recovery in corporate capital expenditures and a rebound in GDP growth in Europe and Asia are also expected to contribute to the global economy's strength.

The weaker US dollar and an increase in productivity are factors that Lee believes will further lift corporate profits in 2024. He supports his projections by highlighting historical data, stating that price-to-earnings ratios tend to expand between 3.5% and 5.5% yields, with price-to-earnings ratios exceeding 18x in 65% of instances when yields are between 4% and 5%.

Lee's top idea for 2024 is to invest in small-cap stocks, which he believes have the potential to catch up to the broader market and surge by up to 50%. Additionally, he favors stocks in the financials, industrials, and technology sectors.

With his track record of accurate predictions, investors will closely monitor Tom Lee's outlook for the stock market in 2024, particularly his S&P 500 price target of 5,200. As the year unfolds, market conditions and economic indicators will determine whether Lee's projections once again align with market realities.