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According to Fundstrat’s Tom Lee, the S&P 500 is poised to rise 4% in June.
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Lee highlighted five catalysts that could drive the stock market higher next month.
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“We see positive support for stocks in June, so buy the dip (if it comes),” Lee said.
According to a note from Fundstrat’s Tom Lee, the stock market is poised to rise another 4% in June after a 5% jump in May.
Lee said the S&P 500 could rise to 5,500 in the next month, driven by five positive market catalysts.
“We see positive support for stocks in June, so buy the dip (if it comes),” Lee said.
The first catalyst is bullish seasonal data. Since 1927, there have been seventeen cases where stocks rose in the first quarter of the year and then fell in April. This setup, which has already taken place this year, bodes well for strong gains in May and June.
Lee highlighted that the gain ratio of stocks rising in June is 100%, with an average gain of 3.9%. Such a gain would send the S&P 500 to new all-time highs.
“Just the seasonal argument is positive,” Lee said. “That’s why we think there is still gas in the tank.”
The second catalyst is inflation, or more accurately, persistent disinflation, said Lee, who expects several favorable inflation data in the coming weeks. That starts with Friday’s release of April’s Core PCE, followed by the release of May CPI on June 12.
A continued decline in used car prices, a rise in new car inventories and a downward trend in owners’ equivalent rental prices make Lee confident that inflation should continue to fall. If that happens, the likelihood of rate cuts in the second half of the year should increase.
“I think the chances of Fed cuts will start to rise again by the end of the year,” Lee said.
The market currently expects just one rate cut in 2024, and if more rate cuts are priced into the market, that should act as a tailwind for stocks.
The third catalyst is the low use of leverage by investors, which suggests that the kind of euphoria often seen at market peaks is nowhere to be found. Lee highlighted that NYSE margin debt of $775.5 billion is still 17% below the 2021 peak of $936 billion.
The fourth catalyst pushing stock prices higher in June is the record $6 trillion on the sidelines. But Nvidia’s huge earnings results last week could prompt investors to finally put that money to work and buy shares, Lee said.
Finally, the fifth catalyst that should push stocks higher in June is solid corporate earnings results, which show that profits continue to rise.
“Earnings season shows that the fundamental story of the economy is intact and I think AI is getting stronger,” Lee said.
With 97% of S&P 500 companies reporting their first-quarter results, earnings per share are beating consensus expectations by 3%. While earnings gains were led by the Magnificent Seven stocks, the other 493 stocks in the S&P 500 delivered solid results. This is evident from data from Bank of America.
“In addition, despite concerns about high expectations for the second half of the year, earnings expectations for the remainder of 2024 rose slightly,” Bank of America said in a note on Tuesday.
Read the original article on Business Insider
