Need to Know: Stocks will have an eight-week rally, and here are six reasons why, says Fundstrat’s Lee

by | Mar 3, 2023 | Stock Market

Early trade in futures suggest stocks may finish the week very close to where they started. Bulls may be frustrated, but they should take it as a win. It’s likely few would have thought the S&P 500
could stay around the middle of its near-four month range when benchmark bond yields
have again burst above 4%. The last time yields moved up through that landmark in mid-October, the Wall Street equity barometer was about 10% lower.

And here to offer further comfort is Fundstrat’s head of research, Tom Lee. He says the market is ready for a strong eight week rally, a scenario that may catch out many investors because they remain nervous about “the understandable lack of clarity on inflation trajectory, Fed policy path, earnings risk and general heightened concerns about recession.” Lee gives six reasons for his optimism. Better inflation news. He reckons the last of the ‘hot’ inflation data was the fourth quarter unit labor cost numbers that came in up 3.2%. Next week will see the start of economic and inflation data for February, which Lee thinks will show softer inflationary pressures and a softer jobs market. “This will reverse, to an extent, the somewhat alarming surge in inflation and jobs data of Jan (part seasonal, part noisy data),” Lee writes in a late Thursday note to clients. Supportive Powell. The Fed chair will give his semi-annual testimony to the Senate Banking Committee and House Financial Services Committee, starting next week, and Lee expects Powell to reinforce the ‘data dependent’ message. That means the 25 basis point hike for the March Fed meeting will be cemented, “barring evidence of continued acceleration of inflation.” That should reduce rate uncertainty for the future, too. Bonds rally. “Th …

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