Investors Could See a Sizable Stock Market Rally After July CPI Report, Says Fundstrat’s Tom Lee
According to Fundstrat’s Tom Lee, investors should expect a “sizable rally” in the stock market following the release of the July Consumer Price Index (CPI) report on Thursday. While consensus estimates suggest that Core CPI will be at 0.22%, Fundstrat’s data science team anticipates that inflation will be lower at 0.15%, which represents an annualized rate of 1.8%. This is just below the Federal Reserve’s long-term inflation target of 2%.
This bullish prediction from Lee is significant, as just over a week ago, he warned investors of a short-term stock market sell-off due to poor seasonality in August and the flashing of a technical sell signal. Since this warning, the S&P 500 has declined by up to 2.5%. However, the July CPI report could act as a catalyst to spark a rebound in stock prices, solidifying the idea that the Federal Reserve is finished with its interest rate hiking cycle.
“We believe +0.15% would be a positive surprise versus consensus… The primary driver remains the drag in CPI coming from the fall in used car prices,” Lee said. He also added, “In our view, this positive surprise would be more than enough to offset the ‘tape bombs’ that rattled markets on Tuesday.”
Lee’s confidence in a cooler CPI report stems from the fact that auto and shelter prices, which accounted for 66% of the increase in inflation since the end of 2019, are now moderating considerably. He notes that used cars and housing are two significant contributors to inflation, and as these components cool, the remaining components will not necessarily lead to a renewed surge in overall core inflation.
The potential for a stock market rally following the July CPI report is further supported by the fact that investor sentiment has soured during the recent stock market decline. “Investors seem to have already become far more wary, and that is a good thing from a sentiment perspective. Equities seem oversold as well. So, we think the probability for stocks to rally strongly after CPI is very high,” Lee said.
With Lee’s optimistic forecast, investors will be eagerly awaiting the July CPI report, as it could potentially lead to a significant rally in the stock market.
Analyst comment
This news is positive for the stock market. According to Tom Lee from Fundstrat, investors should expect a “sizable rally” in the stock market after the release of the July CPI report. The data science team at Fundstrat anticipates lower inflation than consensus estimates, which could solidify the idea that the Federal Reserve is finished with its interest rate hiking cycle. The potential for a stock market rally is further supported by soured investor sentiment and oversold equities. Investors will be eagerly awaiting the July CPI report.
