Inflation has been a big concern for both the Federal Reserve and investors. But according to Tom Lee, co-founder and head of research at Fundstrat Global Advisors, this concern will soon diminish.
"I think inflation is on a glide path towards sub three, sub two by the middle of next year," Lee said on CNBC recently.
In July, the consumer price index (CPI) rose 3.2% from a year ago. Core CPI, which excludes food and energy, showed a 12-month increase of 4.7%. Both metrics increased by 0.2% month over month.
Lee explained that shelter costs, which have been driving core inflation, will "start to cool." He also sees "a lot more downside" in used car prices.
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"I think we could print something pretty low, because when shelter goes to zero then you could have core at zero," he noted.
The Fed has raised interest rates significantly to stabilize price levels. It has an inflation target of 2% — so some are concerned that there would still be room for further tightening. But if Lee is right and inflation falls to under 2%, the central bank might reconsider its stance and potentially ease its monetary policy.
And that could lead to opportunities for investors.
New High For S&P 500
The U.S. stock market saw robust growth in 2023, with the S&P 500 climbing 15%.
Lee sees further upside ahead. He has a year-end price target of 4,825 for the S&P 500, nearly 10% above where the index currently sits.
The Wall Street strategist pointed out that "there's $5.5 trillion of cash on the sidelines." And while many people expect the Fed to remain hawkish, Lee believes the market can absorb one more rate hike.
"I think you have an earnings recovery, Fed may be slowing, interest rates could stabilize and then the cash gets put to work," he added.
If you share this bullish view and want to invest in the S&P 500, there are several exchange-traded funds (ETFs) that provide convenient access to the benchmark index. Investors can look into names like the SPDR S&P 500 ETF Trust SPY, the iShares Core S&P 500 ETF IVV and the Vanguard S&P 500 ETF VOO
Bitcoin To $180,000
Lee has long been a proponent of Bitcoin, and he isn't shy about issuing bold price targets.
In the CNBC segment, he pointed out a significant catalyst for the world's largest cryptocurrency.
"We're in the window where we'll start to see the potential for SEC (Securities and Exchange Commission) approval of a spot Bitcoin ETF," Lee said. "If the spot Bitcoin [ETF] gets approved, I think the demand will be greater than the daily supply of Bitcoin. And so the clearing price — this is done by Sean Farrell, who's our crypto digital strategist — is over $150,000. It could even be like $180,000."
Considering that Bitcoin currently trades at $25,900 apiece, $180,000 would imply a potential upside of 595%. Lee emphasized that this target hinges on a spot Bitcoin ETF being approved in the U.S.
One of the things that makes Bitcoin appealing is that its total supply is capped at 21 million coins. This stands in stark contrast with fiat currencies, which can be printed at will by central banks.
While Bitcoin does not offer a yield, new companies have innovated ways for people to earn passive income from inflation-resistant assets. For instance, you can now invest in rental properties with as little as $100 while staying completely hands-off.
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