Tom Lee.Photo by Cindy Ord/Getty Images for Yahoo
Stocks are in for a 20% rally through the rest of 2023 if they can clear three hurdles, Fundstrat’s Tom Lee said.
Lee pointed to signs of falling inflation and improving market breadth that support his bull case.
He has made the case for months that a new bull market is emerging in stocks.
Stocks could rise in a sharp rally through the rest of 2023, if the market can clear three main hurdles, according to Fundstrat’s head of research Tom Lee.
“As we move into the the second week of June, our confidence that [the] S&P 500 will gain >20% in 2023 has increased. The decisive upside breakout last week helps, as are signs that inflationary pressures are easing,” he said in a note on Monday, pointing to the pullback in wage growth in the May jobs report.
Wages continued a modest slowdown last month, easing to a 4.3% yearly increase compared to the 4.4% yearly increase seen in April. That’s a sign that inflation pressures could be abating in the economy, as higher wages can influence prices to move up as well.
Easing inflation pressures could signal upside in stocks, Lee said, as it would allow the Fed to pause or dial back interest rates hikes. Fed officials have raised rates aggressively over the past year to combat inflation, which weighed heavily on equities in 2022.
He pointed to three key indicators in stocks that could flash in the next month and cement the S&P 500’s trajectory for the rest of the year:
1. The May Consumer Price Index Report
May inflation data will be critical into determining the path of stocks, Lee said. If core inflation clocks in below a 0.4% monthly increase or below a 5.5% yearly increase, that will boost the odds the Fed will pause its rate hikes, which is likely to spur a rally in stocks.
The May consumer price index report is slated to be released on June 13. But markets have already dialed back their inflation expectations significantly, with an estimate of five-year average inflation five years from now dropping to 2.25% over the last week, according to Federal Reserve data.
Story continues
2. The…
..
