Investors should be cautious about investing in stocks after the rate cut, given the looming election uncertainty, says Fundstrat's Tom Lee

• Tom Lee has long called for a stock market rally after the Federal Reserve cuts interest rates.

• But after Wednesday's big 50-basis-point cut, Lee says he sees uncertainty lurking ahead of the election.

• Other analysts have also warned of volatility ahead of the November elections.

Prominent stock market bull Tom Lee has long called for a big rally after the Federal Reserve cuts interest rates.

But after a big 50 basis point cut on Wednesday, Lee says he is feeling cautious ahead of the November election.

“I think this Fed tapering cycle is setting the stage for markets to be really strong over the next month or three months,” Lee, co-founder and head of research at Fundstrat Global Advisors, told CNBC in an interview Thursday.

“But I think there's still a lot of uncertainty about what stocks will do between now and, say, Election Day. And that's why I'm a little bit skeptical that investors will jump into the market,” he added.

In the days leading up to the Federal Reserve's policy meeting, Lee said a rate cut would be… Positioning stocks for a multi-week rallybolstered by increased confidence that more rate cuts are coming and that a soft landing is on the horizon.

That rally would come regardless of a 25- or 50-basis-point cut, he said, if the Fed were to suggest that future cuts were likely. Even then, however, Lee acknowledged there would be volatility before the election but it would calm down afterward for a solid year ahead.

Lee has been bullish on stocks for years, with predictions that the S&P 500 could triple and hit 15,000 by 2030.

Other analysts have also acknowledged the market volatility associated with the presidential election.

That volatility It generally reaches its peak in mid-October. ahead of the November election, after which stocks will experience a relief rally once the outcome is known, SoFi's Liz Young Thomas told Business Insider earlier this month.

Given the volatility related to the election, Lee recommends investing in cyclical stocks in areas such as industrials, financials and small caps.

Small-cap stocks, in particular, will benefit from rate cuts and what Lee calls a “cyclical boost to the economy,” which will result from a drop in costs for consumers such as mortgages, auto loans and credit cards.

“These are all big tailwinds for small-caps,” he said.

Read the original article at Business information