- Stocks have approached the “no supply” situation seen in June, but they could still reach new highs by the end of the year, according to Fundstrat.
- The research firm pointed to falling oil prices as another sign that inflation was “falling like a rock”.
- “Further declines in gasoline should also lower consumer inflation expectations,” Lee said.
Recent equity market volatility is unlikely to prevent the S&P 500 from hitting new highs by the end of the year, Fundstrat’s Tom Lee told clients in a Friday note.
The 6% sell-off in the S&P 500 since Fed Chairman Jerome Powell’s Jackson Hole speech last week has led the stock market to a “no supply” situation similar to the mid-June low. , as concerns mount and few near-term catalysts are seen to drive a rebound, according to Lee.
“There’s a lot [of] concern in the markets in September. The seasons are worrying investors (one of the toughest months), coupled with midterm election uncertainties and the painful three-week downtrend in stocks, adding to the misery,” Lee said.
And yet, the S&P 500 could still reach record highs before the end of the year, according to Lee. This is because inflation is “falling like a rock” and could continue to do so as oil prices fall.
He observed that at $86 a barrel, WTI crude oil prices are now $6 below pre-Russian-Ukrainian war levels, and well below Wall Street forecasts for oil prices of $140. dollars.
“Oil is close to falling to [the] beginning of 2022 levels…this breakdown would amplify tailwinds of ‘disinflation,’” Lee said, adding that with summer winding down, the peak driving season (and demand) is now in the rearview mirror.
“The idea [that] inflation would be sticky…was based on oil rising to $140 or more,” but that is no longer the case, Lee said.
Ultimately, Fundstrat forecast that lower gasoline prices could subtract -0.60% month-over-month from the CPI in August. And further cuts in gasoline should also reduce consumer expectations of future inflation, which is also a crucial element in controlling prices, he added.
As evidence of slowing inflation mounts, this should be a boon for stock prices, as it could accelerate a pivot away from the Fed’s outsized interest rate hikes.
Other factors that bode well for stock prices, Lee said, are the resilience of corporate earnings, subdued investor sentiment and the strength of the U.S. economy relative to its developed peers.
“At the end of the day, we see the second half [stock market] rally thesis intact,” concluded Lee.
. New highs by end the year so the prices oil master inflation