market is primed for strong returns in the second half13 Jun 2022 00:59
https://markets-businessinsider-com.cdn.ampproject.org/v/s/markets.businessinsider.com/news/stocks/stock-market-outlook-record-highs-inflation-cools-down-cpi-oil-2022-6?amp=&_gsa=1&_js_v=a9&usqp=mq331AQKKAFQArABIIACAw%3D%3D#amp_ct=1655072936568&_tf=From%20%251%24s&aoh=16550728594485&referrer=https%3A%2F%2Fwww.google.com&share=https%3A%2F%2Fmarkets.businessinsider.com%2Fnews%2Fstocks%2Fstock-market-outlook-record-highs-inflation-cools-down-cpi-2022-6
The stock market is poised for a strong second half of the year as inflation shows signs of cooling down, Fundstrat's Tom Lee said in a note on Friday.
That's despite Friday's hot CPI report, which showed inflation rose 8.6% year-over-year in the month of May, well ahead of estimates for a rise of 8.3%. That represents the fastest pace of US inflation in 41 years.
The CPI report illustrates that inflation may not have yet peaked as markets had hoped, as oil prices continue to march higher, and that the
Federal Reserve
may have to raise interest rates more than expected to tame higher prices. The market currently expects the Fed to raise interest rates by 0.50% at each of its next two meetings.
But none of that is budging Lee's view that stocks could revisit its prior highs by the end of the year, according to the note.
"We stick with our view that stocks strengthen in 2H and even revisit prior highs," Lee said. Part of Lee's confidence stems from the fact that certain commodities and economic activity are weakening faster than expected, which should help put a lid on rising prices and give the Fed some breathing room in their rate hike trajectory.
These are some of the signs Lee is looking at as a sign that inflation will begin to cooler faster than expected.
1. "US Mortgage applications plunged to lowest level in 22 years... this portends a dual hit to home prices (negative shock) and possibly [a] 60% drop in mortgage banking employment," Lee said.
2. "Fertilizer prices are down 34% from peak," Lee said.
3. "There are signs that corn, cattle and wheat prices might be plateauing," Lee said.
4. "Global supply chain strains seem to be easing... this points to possible accelerated declines in goods pricing," Lee said.
5. "Oil remains elevated, but oil is becoming a barometer for the Russia-Ukraine war and as long as hostilities escalate, oil is higher. But this is somewhat binary. Cessation of hostilities likely dramatically impacts inflation perceptions," Lee said.
Sign In
Follow the stocks
