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The S&P 500 is poised to recover its August losses, said Fundstrat’s Tom Lee.
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In a note on Tuesday, he outlined four reasons for his bullish outlook.
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Lee had previously predicted that the benchmark index would post a new high this year.
According to Tom Lee, head of research at Fundstrat, stocks are poised for a month-long rally, which could bring the S&P 500 to a 2023 high.
Despite Wall Street’s soft September consensus, the S&P 500 is expected to rise 2%-3% next month, citing four reasons for it to regain the 4,600 level in a note Tuesday. Accumulated losses in August.
1. The economy is slowing down.
The Fed’s interest rate hikes over the past year and a half have been working to slow the economy, and Lee expects more encouraging signs in the labor market.
He pointed out that the number of job openings has decreased 8.8 million It came in below expectations of 9.5 million.
That’s good news for stocks, with the Fed citing a tight labor market to justify raising interest rates as it weighs on asset prices. High rates were partly responsible The worst performance of the S&P 500 in 2022Stocks slipped 20% for the year.
2. The Fed does not raise interest rates.
Markets are betting on low odds that the Fed will raise rates again in September, and Lee predicted those bets would be reduced altogether.
“Given the fall in inflation and the strength of the labor market and the expected decline in inflation, we believe these odds will drop to 0% and this should allow interest rates to decline proportionately,” he said.
At its September policy meeting, the Fed said there was a 91 percent chance of keeping interest rates on hold and a 57 percent chance of keeping interest rates at their current levels by the end of the year. CME FedWatch tool.
3. Investors were very weak in August.
Investors were overly pessimistic in August. This could be a contrarian indication that stocks are poised to do better next month.
“We believe this is further evidence of ‘hawkish’ bias from last week,” Lee added.
4. September is a historically strong month for stocks.
While stocks are historically weak in August, they typically rebound in September. Since 1950, the S&P 500 has risen 86% of the time in September, with an average gain of 3.3%.
The upcoming rally in stocks could face resistance from several left-field market concerns, Lee warned, such as if the Fed surprises markets with a rate hike or The United Auto Workers went on strike next monthThis can weigh on stocks.
Still, Lee is one of the most bullish forecasters on Wall Street right now, and in a previous note The S&P 500 will hit a record high of 4,825 this year.. He made the same call last year, even as the benchmark index recorded its worst performance since 2008.
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