- Fundstrat’s Tom Lee says investors should buy stocks ahead of April’s CPI report, which is released next week.
- He said this setup looks favorable for stock prices to rise amidst disinflation.
- Lee said if the CPI report is inline or higher, it would increase the chances of three rate cuts this year.
Fundstrat’s Tom Lee says investors should buy stocks ahead of April’s CPI report, which is released next week.
Lee said in a note Friday that the “buy May” trade remains in full force after the S&P 500 index has risen nearly 4% so far this month.
Mr. Lee expects these gains to continue, with the coming April Consumer Price Index (CPI) report likely to show progress in disinflation, and he believes investors will be surprised by two Federal Reserve checks later this year. Stock prices are likely to rise as the market shifts toward factoring in the above rate cuts.
“We believe April’s ‘inline’ CPI will increase the number of Fed rate cuts from around 1.8 (by the end of 2024) to more than 2.5 cuts,” Lee said. “The rationale, in our view, is that this April’s consumer price index will highlight the possibility that the disproportionate impact of auto insurance on the consumer price index is waning.”
Economists expect April’s consumer price index, to be released Wednesday morning, to rise by 0.31%.
Mr Lee said his bullish short-term outlook is supported by continued declines in volatility indexes, the US dollar and long-term interest rates. It also doesn’t hurt that other central banks are starting to cut interest rates.
Sweden’s Riskbank on Wednesday cut interest rates for the first time since 2016, and the Bank of England also signaled a rate cut was imminent.
“The bottom line is, we’re still going to buy in May.” “The fact that stock prices have risen this week is a positive signal, and we expect data released next week to show that key components of inflation are softening across the board,” Lee said.
