Just as investor faith in the 2023 market rally has started to wobble, Fundstrat’s Tom Lee is back with a new bullish call.
The former JPMorgan Chase & Co. analyst pitched a “tactical buying opportunity” to clients, arguing in a research note that last week’s pullback has created an attractive entry point ahead of Wednesday’s consumer-price index for June, which could send the S&P 500 up 100 points, or about 2.3%, higher if it’s as soft as Lee expects.
Over the past few weeks, commentary from Federal Reserve officials, as well as minutes from their June meeting, further emphasized senior Fed policy makers’ expectations of continued interest-rate hikes. Fed funds futures markets see a rate increase in July as a near-certainty, while the Fed’s most recent “dot plot” for an estimated path of rates showed a high likelihood of two additional hikes in 2023.
But Lee thinks investors have been too quick to embrace this “higher for longer” narrative, and sees how a soft inflation print on Wednesday could ease pressure on the Fed to continue hiking rates.
Core inflation, according to Lee, could be on track for a 0.2% print for June. That’s a bigger decline than what’s expected by economists polled by The Wall Street Journal. They expect both the core and headline inflation numbers for June to come in at 0.3%.
On a 12-month basis, economists told the WSJ they are forecasting core inflation to come in at 5%, while headline inflation is expected to slow to 3.1%.
If Lee’s forecast is correct, it would mean that inflation has ebbed to its weakest level since August 2021.
“It would show that the Fed is getting inflation on a monthly basis to levels they are trying to target — I think 0.2 is 2.5% annualized,” he said during an interview on CNBC Monday morning.
The Fed’s yearly inflation target is 2%. Chairman Jerome Powell has insisted the central bank needs to see inflation sustainably return to that range before the Fed starts cutting interest rates again.
Since launching Fundstrat in 2014, Lee has earned a reputation as a permabull. He was bullish for much of the post-2008 financial crisis rally, and advised clients to buy stocks during the COVID-19 selloff.
Fundstrat entered 2023 with a year-end S&P 500 target of 4,750, making him one of the most bullish analysts on Wall Street, and one of the few who anticipated how swiftly the market might rebound.
See:He called the 2023 stock-market rally. Here’s what Wall Street’s biggest bull sees for the second half.
Lee also was an early Wall Street believer in crypto, and once said bitcoin could hit $100,000 by the end of 2021 (it eventually peaked at $69,000 on Nov. 10, 2021, according to FactSet data). More recently, he has said bitcoin could hit $200,000 a coin over the next five years.
One bitcoin
BTCUSD,
was worth $30,344 on Monday, according to FactSet data.
U.S. stocks were mixed on Monday, with the S&P 500
SPX,
up 4 points, or 0.1%, to 4,403. The Nasdaq Composite
COMP,
fell 6 points, or 0.1%, to 13,653. The Dow Jones Industrial Average
DJIA,
gained 158 points, or 0.5%, to 33,895. But all three indexes declined last week, with the Dow seeing its biggest drop since March.
Lee typically makes calls with a long-term horizon. So, why change things up now?
He said on CNBC that the call was mostly about reassuring Fundstrat’s clients and “to contain their unease” about the market especially as bears hope rising Treasury yields might constrain the rally.
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