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Stocks will have an eight-week rally, and here are six reasons why, Fundstrat’s Lee says

Early futures trading suggests stocks could end the week close to where they started. Bulls may be frustrated, but they should consider it a win.

Probably few would have thought that the S&P 500 SPX,
could remain around the middle of its near four-month range when benchmark bond yields TMUBMUSD10Y,
have jumped above 4% again. The last time yields rose through that milestone in mid-October, Wall Street’s stock barometer was about 10% lower.

And here to add even more comfort is Tom Lee, Fundstrat’s head of research. He says the market is poised for a strong eight-week rally, a scenario that could overwhelm many investors as they remain nervous about “the understandable lack of clarity on the inflation trajectory, Fed policy, earnings risk and overall elevated concerns about the recession.”

Lee gives six reasons for his optimism.

Better inflation news. He thinks the last of the “hot” inflation data was the unit labor cost data in the fourth quarter, which rose 3.2%. February economic and inflation data will begin next week, which Lee says will show softer inflationary pressures and a softer job market.

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“This will to some extent undo Jan’s somewhat alarming rise in inflation and jobs data (part seasonal, part noisy data),” Lee writes in a late Thursday letter to clients.

Supporting Powell. The Fed chairman will give his semiannual testimony to the Senate Banking Committee and the House Financial Services Committee starting next week, and Lee expects Powell to reinforce the message of “data dependent.” That means the 25 basis point increase will be cemented ahead of the Fed’s March meeting, “subject to evidence of continued acceleration in inflation.” This should also reduce interest rate uncertainty for the future.

Bond rally. “The bond market is likely to be easing in March. The ‘hot’ January inflation data caused the bond market to price in higher odds of +50bp in March and April, and the Fed seems to be moving against that – meaning the Fed is less aggressive than [the] recent movement in bonds,” says Lee.

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Falling VIX. “If incoming data moves in the direction we expect (“softer”), bond volatility should fall, supporting a stock rally in March to April. This means VIX could fall, and a falling VIX will support higher stock prices .”

currently sits at 19.5, fractionally below the long-term average of 20.

The market is NOT expensive. The argument that stocks are generally overvalued is, according to Lee, confirmation of bears waiting on the sidelines.

“As highlighted earlier this week, ex-FAANG, the S&P 500’s P/E (2024) is 14.8x. And sectors like energy are 10x and financials 11x. These are not demanding appraisals. And consider the fact that the US 10-year at a yield of 4.0% is an implied P/E of a 25X bond. Yup. The bond market is still much more expensive than equities,” says Lee.

Seasonal products are also supportive. Lee has crunched the numbers for the first five days rule, according to market lore, like the first five sessions of January, that’s how the year goes. He has applied that to the last seven times where the first five days yielded a gain of more than 1.4% and came after a bad year, as was the case at the start of 2023.

Source: Fundstrat

“This composition implied market gains through February 16 and a consolidation through early March (3/7). 2023 follows this fairly closely. This same composite now implies that March to the end of April will be the strongest 8-week period for 2023 with an implied median gain of 7%,” Lee calculates.

That means if 2023 follows the same path, the S&P 500 could hit 4,250 by the end of April.


Pullback in 10-Year Treasuries Yields TMUBMUSD10Y,
helps S&P 500 futures ES00,
gain ground. Gold GC00,
has risen as the dollar index DXY,
declines in response to the easing of US interest rates.

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The buzz

US economic data to be released Friday includes the final reading of the S&P Global Services PMI for February at 9:45 a.m., followed 15 minutes later by the ISM Services report.

Fed speakers include Dallas Fed President Logan at 11 a.m. and Fed Governor Bowman at 3 p.m.

C3.ai shares AI,
up 18% in premarket action after the enterprise artificial intelligence software group delivered well-received results and optimistic forecasts. Wedbush raised its price target for the stock from $13 to $24.

Marvell Technology Inc. stock MRVL,
is down nearly 9% after the chip company met expectations with last-quarter results but blamed inventory corrections for an outlook that fell below consensus view.

Britain’s market watchdog has launched an investigation into how the London Metal Exchanges handled a nickel market crisis last year that led to billions of dollars worth of nickel trading being canceled after prices rose.

Shares in several stocks under the Adani umbrella rallied after Florida-based GQG Partners invested nearly $1.9 billion in the stock that fell, following a report from US short-seller Hindenburg Research in late January.

German airline Lufthansa says traveler demand is robust, boosting its shares LHA,
to take off.

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The graph

Here’s some good news from Citi’s global supply chain pressure index, which has fallen significantly since May last year and is now just above the average level of the pre-COVID years, notes Nathan Sheets, the bank’s chief global economist.

“All three major components of the index – transportation costs, global purchasing manager indices and inventory performance measures – show normalizing conditions. These dynamics suggest that pressures on commodity prices have eased significantly from last year and our models suggest that core commodity inflation could soon reach 1% or less in the US and developed markets more broadly.”

Source: City

However, Sheets also notes that the services sector is the source of much of the current inflationary pressure and “unless services inflation picks up much faster and more forcefully than expected, many major central banks are likely to continue to tighten policy in the coming months.”


These were the most active stock tickers on MarketWatch as of 6am Eastern.


Security name




Bed bath & beyond


AMC Entertainment


Exela Technologies




Troika Media




Silvergate capital


AMC Entertainment is preferred



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