Fundstrat co-founder Tom Lee, one of Wall Street’s most prominent bulls, has laid out three conditions for a sharp rally in stocks.
“If the market can clear three key hurdles, it could rally sharply for the rest of 2023,” Lee wrote in an investment note today, according to Business Insider.
“As we enter the second week of June, our conviction that the S&P500 will rise more than 20% this year is growing stronger, and last week’s decisive upside breakout is helpful, as are signs that inflationary pressures are easing,” Lee said.
He pointed to three key indicators that could solidify the S&P500’s rally for the rest of the year. First, he said, “May’s Consumer Price Index (CPI) data will be critical to determining the path of the market.” If the underlying CPI rises below 0.4% month-over-month or 5.5% year-over-year, the Fed will likely stop raising interest rates, sparking a stock market rally, he explained.
The May CPI report will be released on May 13. However, the market has already significantly lowered its inflation expectations, with the five-year average inflation estimate falling to 2.25% last week.
The second key indicator is the “artificial intelligence 먹튀검증(AI)-fueled rally in tech stocks,” Lee said. “Tech giants like Tesla are up almost 100% so far this year,” he said, noting that “there’s a chance the Fed won’t tolerate that kind of enthusiasm.”
However, “AI could actually ease inflationary pressures,” Li added, “as productivity gains in the workplace will keep wage inflation in check in the long run.” “This suggests that the Fed will not tighten financial conditions to combat the tech rally, which means there is upside for the overall market, especially tech stocks,” he explained.
Lee cited “broader market breadth” as the third key factor for the rally. “The percentage of stocks that have risen in the S&P500 has increased significantly, with eight out of 11 sectors trading above their 20-day moving averages,” he said. “Six of these sectors have 20-day moving averages above their 200-day moving averages, another sign that a positive trend is building in the market.”
Lee also highlighted the decline in wage growth in the May employment report. Wages continued their modest slowdown last month, easing to 4.3% from April’s 4.4% annualized increase. This is interpreted as a sign that inflationary pressures may be easing in the economy, as wage growth can also affect inflation.
“Easing inflationary pressures could be a bullish signal for equities as the Fed could stop or reduce rate hikes,” he said.
Tom Lee, meanwhile, is a well-known bull, who was mostly bullish on stocks even during last year’s bear market, incorrectly predicting that “the S&P500 will make new highs in 2022” when it actually fell 20%.
He also predicted that “a new bull market will begin in March of this year” and that “the S&P 500 will rise 24% in 2023 as the Fed pulls back on tightening,” with the S&P 500 approaching an all-time high of 4,800.