Thomas Lee's Fundstrat sees 'monstrous' stock rally starting next week

Sectors of the stock market that got pummeled the most from the COVID-19 pandemic may be poised to break out soon as Fundstrat Global Advisors research team says the number of virus cases may have peaked.

The number of COVID-19 cases, which rose to 19M globally and 4.9M in the U.S. as of Friday, are declining on a seven-day rolling basis to a decrease of 15,492.

The Fundstrat team sees the stock market climb starting on Aug. 14, with the potential for a 30% runup for equity markets in the next two weeks.

“When cases peaked in late April, it took 20 days before the epicenter stocks started their massive 3,000bp [or 30%] outperformance rally (over 10 days).  If cases peaked July 24th (which looks definitive), the 20th day is August 14th,” Fundstrat reasons.

Fundstrat founder Thomas Lee sees “epicenter stocks” — those that sank the most due to restrictions implemented to slow the spread of COVID-19 — as those likely to see the best gains.

Such stocks include airlines, hotels, apparel retail, and household appliances.

Others have also predicted a shift out of tech into other sectors such as consumer discretionary, financials, industrials, and energy. But the timing the move is tricky.

MarketWatch points out that there are signs that the rotation may already have started.  The Russell 2000 Index (RTY), comprised of small cap companies, increased more than 5% last week, the Industrial Select Sector SPDR ETF (NYSEARCA:XLI) gained 4.3% for the week, and the Energy Select Sector SPDR ETF (NYSEARCA:XLE) climbed 2.5% last week.

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Compare the Russell 2000 Index performance with the S&P 500, XLI, and XLE for the past month:



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