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Investors should take advantage of inflation-driven market declines to buy stocks, Fundstrat said.
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Fundstrat’s Tom Lee said March’s CPI report showed real progress, suggesting disinflation will continue.
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Lee also believes the Fed is likely to cut interest rates in June, although the likelihood has diminished.
Investors should immediately buy into the stock market decline caused by Wednesday’s strong March CPI report, according to Fundstrat’s Tom Lee.
Lee said a deeper look at the inflation report, which was slightly higher than economists expected, shows continued disinflation. This suggests that for Lee, the stock market decline is a buyable decline, similar to what happened after the Consumer Price Index (CPI) reports in December, January, and February.
“Can you believe this was actually a very good CPI report? I think there’s a single graph that can explain it,” Lee said in a video to clients on Wednesday. “Believe it or not, this was actually a very good CPI report, and I think that’s why the stocks sold today ended up being bought.”
That chart, shown below, highlights that inflation is starting to return to its long-term trend of less than 3% across many of the more fundamental components of CPI reporting.
“The force of disinflation is very strong because the proportion of components with year-over-year inflation rates below 3% was the highest.In other words, there are more that are close to the trend than those that are close to it. ,” Lee explained.
Additionally, Lee highlighted that the main driver of inflation in March was an increase in car insurance prices, the first in several years since car prices soared during the pandemic.
“This CPI increase is almost solely due to auto insurance, which just goes to show that this is a timing issue and not a structural issue. In other words, there are other CPI increases. There is nothing that is causing this,” Lee said.
Jeremy Siegel highlighted this same dynamic in an interview with CNBC on Thursday.
“Shelter and auto insurance are two of the most backward components of the consumer price index,” Siegel explained. “Car insurance premiums have been observed to fluctuate 12 to 15 months after used and new car prices increase.”
Lee also said that a June rate cut by the Federal Reserve remains on the table, even though futures markets put the chance of a rate cut at about 20% following the CPI report. Ta.
“I don’t think this completely eliminates the possibility of a June rate cut,” Lee told CNBC on Wednesday, adding that the Fed will review three more CPI reports before making a June 12 rate decision. He added that it was necessary to do so. If there is evidence of a return to disinflation, the Fed could be inclined to cut rates.
And that would be great news for the stock, market experts say.
Read the original article on Business Insider
