Renowned financial analyst, Tom Lee of Fundstrat, has recently reemerged to offer a compelling perspective on the current market conditions. Lee suggests that the recent pullback presents a strategic opportunity for investors, dubbing it a “tactical buying opportunity.” In a research note, he explains that the market retreat has created an appealing entry point just before the release of the consumer-price index for June, which could potentially drive the S&P 500 up by 100 points or approximately 2.3%, if it aligns with Lee’s expectations.
In recent weeks, Federal Reserve officials’ statements and the minutes from their June meeting have underscored their belief in the need for continued interest-rate hikes. The futures markets for Fed funds indicate a high probability of a rate increase in July, while the Fed’s latest projected rate path suggests two more hikes throughout 2023.
However, Lee offers a contrasting viewpoint. He argues that investors have hastily embraced the notion of prolonged rate hikes, overlooking certain factors. Notably, Lee believes that a soft inflation reading on Wednesday could alleviate the pressure on the Fed to persist with raising rates.
Lee predicts that core inflation is likely to register a 0.2% figure for June. This forecast signifies a greater decline than anticipated by economists polled by The Wall Street Journal, who expect both core and headline inflation numbers to come in at 0.3%.
Economists participating in the survey project a 5% core inflation rate on a year-over-year basis, while headline inflation is forecasted to slow down to 3.1%.
If Lee’s analysis proves accurate, it would indicate that inflation is at its lowest point since August 2021.
During an interview on CNBC Monday morning, Lee expressed his view stating, “It would demonstrate that the Fed is effectively steering inflation toward their target levels on a monthly basis. A 0.2% rate translates to an annualized rate of 2.5%.”
The market awaits Wednesday’s consumer-price index release with bated breath, as investors eagerly determine whether this tactical buying opportunity will indeed materialize.
The Fed’s Inflation Target and Interest Rates
The Federal Reserve’s annual inflation target is set at 2%. Chairman Jerome Powell has emphasized that the central bank will only consider cutting interest rates once inflation consistently returns to this range.
Fundstrat’s Bullish Outlook
Since its establishment in 2014, Fundstrat has gained a reputation for being bullish. Even during the post-2008 financial crisis rally, the firm remained optimistic and advised clients to buy stocks during the COVID-19 market downturn.
As we entered 2023, Fundstrat had set a year-end target of 4,750 for the S&P 500. This made them one of the most bullish analysts on Wall Street and one of the few who accurately predicted the swift market rebound.
Insight From Fundstrat’s Founder
Fundstrat’s founder, Thomas Lee, has been an early advocate for cryptocurrency as well. He once stated that bitcoin could reach $100,000 by the end of 2021 (peaking at $69,000 on November 10, 2021, according to FactSet data). Recently, Lee has further projected that bitcoin could potentially reach $200,000 per coin within the next five years.
On Monday, bitcoin was valued at $30,344 according to FactSet data.
Market Performance
On Monday, U.S. stocks showed mixed results. The S&P 500 increased by 4 points or 0.1% to reach 4,403, while the Nasdaq Composite fell by 6 points or 0.1% to 13,653. However, the Dow Jones Industrial Average saw a gain of 158 points or 0.5% to reach 33,895. Despite these recent fluctuations, all three indexes experienced a decline last week, with the Dow witnessing its largest drop since March.
Long-term Perspective
Thomas Lee is known for his long-term approach to forecasting. So why the change now?
In a CNBC interview, Lee explained that the purpose of his recent call was primarily to reassure Fundstrat’s clients and alleviate any concerns they may have about the market. This is particularly relevant as bearish investors speculate that rising Treasury yields may impede the ongoing rally.
