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The S&P 500 is on course for a 2% rally this week that should push the index past 4,500, according to Fundstrat.
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The company said it expects the June CPI report to show inflation continuing to decelerate.
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“For the first time this year, we are issuing a short-term tactical buy call on the S&P 500,” said Fundstrat’s Tom Lee.
Fundstrat issued a tactical buy recommendation on the S&P 500 for this week, expecting the index to jump more than 2% above the 4,500 level, according to a Monday note.
The main catalyst for the expected rise is weaker-than-expected inflation, with Fundstrat’s Tom Lee believing that the June CPI report, due out on Wednesday, could show a monthly print of 0.25%, which would be less than the consensus. estimates of 0.30%.
Additionally, last week’s stock selloff triggered by an ADP jobs report followed by a weaker-than-expected Bureau of Labor Statistics jobs report provides an attractive entry point into the market. scholarship.
“We don’t typically issue short-term tactical calls, but given the weakness in the markets following the ADP and BLS jobs report, we think the timing makes sense,” Lee said.
Lee’s confidence in a weak inflation report is driven by the continued decline in used car prices, as well as seasonal adjustment factors that are expected to lower core CPI in June and July. Lee also pointed out that 42% of the CPI’s components are in outright deflation, which is well above the index’s long-term average.
A reading of low inflation would be bullish for the stock market, as it undermines the idea that the Federal Reserve will keep interest rates higher for longer. It would also likely put downward pressure on short-term rates and undermine the idea that the rally in equities from last October’s low is just a bear market rally.
“We think investors have shifted to a ‘hawkish Fed’ view and ‘Rising for longer’, which is reflected in rising yields. So the idea of a tactical overhaul from of a light CPI report would make sense,” Lee says.
Fundstrat’s tactical buy recommendation is in place until Friday July 14th.
“If our view is correct, there will be a rapid reassessment of views, which will drive this upside,” Lee said. “That would essentially shatter the bear market thesis.”
Read the original article on Business Insider