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According to Fundstrat’s Tom Lee, the S&P 500 is expected to rise 4% in June.
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Lee highlighted five factors that could drive stock prices higher next month.
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“We are seeing positive support for stocks in June, so buy on the dips (if there are any),” Lee said.
The stock market is expected to rise another 4% in June after rising 5% in May, according to a Tuesday note from Fundstrat’s Tom Lee.
Lee said five positive market factors could help the S&P 500 rise to 5,500 over the next month.
“We are seeing positive support for stocks in June, so we should buy (if there is a dip),” Lee said.
The first catalyst is seasonal bullishness: Since 1927, stocks have risen in the first quarter and then fallen in April 17 times, which has already happened this year, portending big gains in May and June.
Lee noted that stocks that rose in June had a 100% winning rate, with an average gain of 3.9%. Such a rally would propel the S&P 500 to an all-time high.
“Just seasonal factors are positive,” Lee said, “so that’s why we think there’s still fuel left.”
The second catalyst is the continuation of inflation, or rather de-inflation, according to Lee, who expects some favorable inflation data in the coming weeks, starting with April core PCE on Friday and May CPI on June 12.
The continued decline in used-vehicle prices, a surge in new vehicle inventory and a downward trend in equivalent owner-occupier rents have Lee confident that inflation will continue to decline, which, if it does, should increase the likelihood of an interest rate cut later this year.
“I think the likelihood of the Fed cutting rates by the end of the year is actually going to start to increase again,” Lee said.
The market is currently expecting just one rate cut in 2024, and as the market starts to price in further rate cuts, that should be a boon for stocks.
The third factor is low investor leverage, which means the euphoria that is often seen during market peaks is nowhere to be seen. Lee noted that the NYSE’s margin debt of $775.5 billion is still 17% below its 2021 peak of $936 billion.
The fourth factor driving stocks higher in June is a record $6 trillion in cash sitting idle. But Nvidia’s impressive earnings report last week could spur investors to finally put that cash to work and buy shares, Lee said.
Finally, the fifth factor driving stock prices higher in June is strong corporate earnings results that suggest profits continue to grow.
“Earnings season is showing that the fundamentals of the economy are healthy, and I think AI is going from strength to strength,” Lee said.
According to Bank of America data, 97% of S&P 500 companies reported first-quarter results, with earnings per share beating consensus estimates by 3%. The gains were led by the Magnificent Seven stocks, but the other 493 stocks in the S&P 500 also posted strong results.
“In addition, earnings expectations for the remainder of 2024 increased slightly quarter-to-date, despite concerns about elevated expectations for the second half of the year,” Bank of America said in a Tuesday note.
Read the original article on Business Insider
