Fundstrat's Tom Lee Bullish On Strengthening Stock Market Amid Falling Inflation And Fed's Labor Market Confidence

The stock market is showing remarkable resilience in 2024, with inflation easing and the Federal Reserve less worried about the robust U.S. job market. This is the view of Fundstrat‘s Head of Research, Tom Lee, who accurately predicted the S&P 500’s 24% increase in 2023.

What Happened: Lee highlighted the stock market’s strength in 2024, despite concerns about corporate earnings and the timing of Fed rate hikes. The Fed’s recent meeting suggested no imminent rate cuts until inflation is under control, a sentiment echoed by Fed Chair Jerome Powell in a “60 Minutes” interview, reported Business Insider.

Lee emphasized the importance of the Fed’s dovish turn for stocks, downplaying the significance of the exact timing of rate cuts. He also noted that falling prices have not led to a significant rise in unemployment, a positive sign for the economy.

“The stock market should really just care that the Fed has gone from fighting inflation and almost giving the economy a heart attack to one where they try to manage the business cycle,” Lee said in an interview with CNBC on Friday. “So if they don’t feel comfortable doing this cutting in March instead of May, I don’t think it should have any effect on equities and how they do today.” 

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Lee also pointed out the substantial amount of cash sitting on the sidelines, which could potentially fuel further stock gains. He has predicted a new S&P 500 record in 2024, with a year-end price target of 5,200, possibly increasing to 5,500, an 11% rise from the current levels.

Why It Matters: Despite Lee’s optimism, other market experts have expressed concerns about the current market conditions. Veteran investor John Hussman recently warned of potential steep declines, similar to previous extreme sell-offs, due to the current “Cluster of Woe.”

Renowned investor Robert Prechter has also cautioned about a possible major sell-off, likening the current market situation to the years leading up to the 1929 crash. Fund Manager Cole Smead has warned that the U.S. stock market is in a “very dangerous” spot due to robust job numbers and wage growth, suggesting that the Federal Reserve’s interest rate hikes may not be having the desired impact.

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