Source: Golden Ten Data
Analysts who accurately predicted a sharp rise in US stocks last year pointed out three recent evidence supporting the Federal Reserve's dovish shift and predicted that inflation would continue to cool down.
Tom Lee (Tom Lee), founder of the US market research company Fundstrat Global Advisors, said that it is expected that the Federal Reserve will still start cutting interest rates in June.
Lee is one of the few well-known Wall Street analysts who expect the market to rebound in 2023. The target price he set for the S&P 500 index (SPX) last year was only more than 30 points away from the index's final price. According to reports, among the strategists tracked by Bloomberg, his predictions were the closest.
In a video produced for the company's clients, Lee cites recent inflation figures as evidence that prices are cooling, and points to three pieces of evidence supporting the Federal Reserve's dovish shift.
The first is the personal consumption expenditure index (PCE), an inflation indicator favored by the Federal Reserve. In February, the index rose 2.8% year on year, the lowest level in three years.
Lee pointed out that consumer inflation expectations are also “declining.” According to a recent survey by the University of Michigan, the median one-year inflation forecast for February remained around 3%.
Lee also mentioned France's core inflation data, which was the first published March inflation data in a global economy. Last month, France's inflation rate fell from 0.9% to 0.2%, indicating that the inflation rate in most economies is likely to decline, especially considering that the January and February inflation data may be “statistically biased.”
All of this indicates that the Federal Reserve may cut interest rates earlier than the market expected, which is good news for the stock market. Traders have been waiting for the Federal Reserve to cut interest rates for over a year, but according to the Chicago Mercantile Exchange's FedWatch tool, the market expects the possibility that the Fed will cut interest rates by 75 basis points or more this year is only 55%, down from 85% a month ago.
Meanwhile, only about 60% of investors expect the Federal Reserve to cut interest rates for the first time in June.
This is probably because the market was attracted by manufacturing price data released on Monday, and the US ISM price index rose to 55.8 in March. Lee pointed out that this is the only “hawkish inflation indicator” introduced in the past two trading days.
“I think it's an illusion. In fact, we'll get more verification on April 10,” Lee was referring to the March Consumer Price Index (CPI) report. “Our basic prediction remains that inflation will continue to fall.” he added.
However, some economists warn that inflation may remain high for a long time due to lingering price pressure in the economy. Top economist Mohammed El-Erian recently warned that the Federal Reserve should wait “a few years” before starting to cut interest rates because the potential inflation rate associated with a strong economy is likely to rise in recent years.
edit/lambor