- Fundstrat’s Tom Lee says investors should buy stocks ahead of next week’s release of May’s jobs report.
- Lee said April’s core PCE data showed inflation slowing and the release so far has been a tailwind for stocks.
- “We think stocks are likely to perform well ahead of the May employment report being released next week,” Lee said.
Investors should buy stocks on the dip ahead of next week’s May jobs report, according to a Friday note from Fundstrat’s Tom Lee.
The S&P 500, Nasdaq 100 and Dow Jones Industrial Average are down 3%, 4% and 5%, respectively, from their recent highs.
Lee said the modest decline in stock prices over the past week has made them an attractive entry point for investors, especially following the release of April core PCE data that showed inflation slowing and ahead of the employment report.
Core PCE rose 0.25% from the previous month in April, in line with economists’ expectations, easing investor fears following a series of high inflation reports earlier this year.
“This is the best core PCE month-on-month change for all of 2024, supporting the view that inflationary pressures are weakening,” Lee said.
Lee also believes that upcoming PCE reports will continue to show disinflation, which will increase the likelihood of a Fed rate cut later this year and support stock price gains.
“We believe these improvements are sustainable, as housing has been steadily slowing and converging towards market-based measures that are not up 6% year-over-year,” Lee said. “Core PCE excluding housing increased 0.22% month-over-month, down from 0.31% month-over-month in March, and year-over-year growth is down to 2.15% from 2.19% in March. Therefore, PCE inflation excluding housing is on target.”
Breaking down the figures, Lee noted that since the end of 2022, stock prices have generally performed well following the release of monthly core PCE reports, especially since stock prices had fallen 1% in the five days prior to the release.
In the four PCE reports since the end of 2022, stock prices fell 1% prior to the release of the reports, but stock prices rose an average of 2.3% each time in the week following the release of the PCE reports.
“Therefore, we think stocks are likely to perform well heading into the release of the May employment report next week,” Lee said.
The May employment report will be released on Friday, June 7. Economists currently expect 175,000 jobs to be added to the economy in May, with the unemployment rate remaining at 3.9%. Such a report would be consistent with April’s employment report and would likely pressure the Fed to cut interest rates sooner.
