Investors should buy stock ahead of Nvidia’s earnings report and Fed Chairman Jerome Powell’s Jackson Hole speech.
The bold call comes from Fundstrat’s Tom Lee, who cited four reasons why he expects shares to rise soon.
“While interest rates could go up, equities are showing early signs of diverging from higher interest rates.”
It’s been a rough couple of weeks for the stock market, with both the S&P 500 and Nasdaq 100 down about 5% in August, but Fundstrat’s Tom Lee sees a buying opportunity.
In a letter to clients on Wednesday, Lee said today is the day to add risk to portfolios and buy stocks ahead of two major market-moving events: Nvidia’s earnings report after the market closed Wednesday, and Chairman Jerome’s speech. Powell of the Federal Reserve on the US stock exchange. Jackson Hole Symposium Friday Morning.
This bold call comes amid a rise in interest rates, with 10-year Treasury yields rising 50 basis points in recent weeks to levels not seen since 2007.
“Despite this interest rate hike, we think the opportunities have shifted towards a higher stock price in the near term. That is, we would be stock buyers from Wednesday even if we are still close to a low. are,” says Lee. said.
Here are four reasons why now is the time to buy stocks, just before two major market-shaking events, according to Fundstrat.
1. Stocks typically do well after Jackson Hole.
Lee analyzed market performance in the week following Jackson Hole’s speeches and found that stocks tend to move higher, not lower.
“Our analysis suggests that more than 80% [chance] stocks rise after Friday,” he said.
Looking at data since 2003, Lee found seven instances where the S&P 500 fell in the two weeks leading up to the Fed speech, similar to what the stock market looks like today.
In six of those seven cases, stocks rose 0.5%-5% in the week after Jackson Hole. One exception was last year when Powell was particularly aggressive.
“The context is different in 2023, as not only is inflation at a lower level, but the rise in 10-year rates threatens a potentially greater tightening of financial conditions. Therefore, we see probabilities favoring language over this rise in the interest.” said Lee.
2. New data could put pressure on inflation.
New data shows wages for new hires are down from a year ago. Meanwhile, car loan delinquencies are on the rise, likely putting pressure on car prices.
“We previously wrote that used car prices could fall another 30% from now on. All of this argues that future inflation will be softer and that the Fed is more likely to be more accommodative,” he said.
3. Stocks deviate from the quotes.
When interest rates rose to their highest level in more than a decade earlier this week, technology stocks actually went higher, not lower.
“This is a somewhat significant development, if it is due to the fact that stock prices are about to reverse. Our view is a calculated guess that stocks will rise, despite higher interest rates, as the stock market senses this turn said Lee. “We say the latest rate hike won’t hit equities proportionally.”
4. Coming data could ease inflation concerns.
A lot of economic data is coming out next week, including Case-Shiller Home prices, job openings and GDP revisions for the second quarter. And Lee is optimistic it will paint a clearer picture that inflation is indeed coming down, which means there should be less upward pressure on interest rates.
“Our view is that this will support the picture of a slide into lower inflation and a weakening labor market. Given the aggressive shift in investor expectations, I believe this would further support an upturn in equity markets,” said Lee. “Our constructive stance on buying ‘risk’ on Wednesday is that the bull market is intact.”
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