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The stock market presents a buying opportunity this month, according to Tom Lee of Fundstrat.
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Indeed, inflation is expected to fall “significantly” over the rest of the year, Lee predicted.
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He highlighted lags in the CPI as real-time prices in the economy begin to ease.
Investors should buy stocks this month as inflation is set to rise slump for the rest of the year, according to Tom Lee, head of research at Fundstrat.
Talk to CNBC On Monday, Lee highlighted March inflation figures, with prices higher than expected for the third consecutive month in March.
But the high inflation figures are largely due to delays in official statistics, Lee said. Real-time housing and rent prices, for example, are “stabilization“, although housing inflation increased by 5.7% annually in the official March report, he noted.
Real-time price declines will eventually catch up with the official inflation report. That’s bullish for stocks because lower price growth gives the Fed more room to cut interest rates and ease monetary policy, Lee said.
“I think inflation will slow down quite dramatically. I don’t know when, but it will be in the second half of this year,” he predicted.
Central bankers said at their latest policy meeting that they needed more confidence that inflation would return to its 2% target before considering rate cuts. Markets are pricing in one or two rate cuts for the year, depending on CME FedWatch Toolcompared to seven at the start of 2024.
But Fed officials could give in to pressure to lower interest rates, especially considering the impact of keeping rates too tight for too long, Lee suggested. Risk of high rates push the economy into a recession and causing market volatility, as investors, banks and consumers grapple with a higher cost of borrowing.
“I don’t think the Fed is comfortable with long-term rates at these levels. They’re quite high and, as you know, that puts a lot of pressure on regional banks…the cost of l “The money is quite high,” he added. Lee said.
Lee is among Wall Street’s most optimistic 2024 forecasters. Previously, he predicted the S&P 500 could rise to 5,500 by the end of the year, implying an additional 6% gain for the benchmark index.
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