Source: Finance Association
① Tom Lee suggests that investors should buy stocks before the April CPI report is released next week; ② he said that as inflation cools down, this situation seems to be conducive to rising stock prices; ③ Lee said that if the CPI report is in line with or better than expectations, it will increase the possibility of interest rate cuts 2-3 times this year.
Tom Lee, co-founder and head of research at the US investment agency Fundstrat Global Advisors, suggested in the latest report released on Friday that investors should buy stocks before the April CPI report is released next week.
Although there is a saying “sell in May and go away” (sell in May and go away) in Western financial markets, it is regarded as a creed by many Wall Street people. However, many Wall Street bosses think this year's situation is different; Lee is one of them. He previously analyzed historical data and found that since 1985, “May's performance was unexpectedly good.”
As a result, he found that in the past 40 years, positive returns were achieved 77% of the time in May, but in the case of positive returns in the first quarter and negative returns in April, the return rate was even higher, reaching 83%. Isn't this situation like this year?
US stocks “ended violently” in April this year. Among them, the Dow dropped a cumulative total of 1991.45 points, or 5.00%; the NASDAQ fell 4.41%, and the S&P 500 index fell 4.16%. Previously, the three major stock indexes all recorded five consecutive months of gains.
CPI material cooling
As a result, although the S&P 500 has risen nearly 4% so far this month, he insisted he should keep buying stocks.
Lee expects these gains to continue because he believes that the upcoming April CPI report may show progress in cooling inflation, and investors may switch to anticipating interest rate cuts more than twice this year, which will boost the stock market.
“We believe that if the April CPI is in line with expectations, it will cause the number of interest rate cuts by the Federal Reserve to rise from about 1-2 times (by the end of 2024) to 2-3 or more times.” He said, “We think the reason is that April's CPI will highlight the possibility that auto insurance's disproportionate impact on CPI is weakening.”
Next Wednesday (15th), the US Department of Labor will announce the consumer price index for April. Most Wall Street economists expect that the report will show a slight easing of price pressure, but the widely watched CPI index has always been far above the Federal Reserve's target, with an annualized increase of 3.5% in March.
Lee said, “Our basic expectations support the 'May buy' idea. The stock market's rise this week is a positive sign. Next week, we expect the upcoming data to be released will show an overall weakening of key components of inflation.”
He was one of the few bulls on Wall Street last year. At the end of 2022, he predicted that the S&P 500 index would soar by more than 20% to 4,750 points in 2023. As a result, the index surged unexpectedly last year, and the final price was only more than 30 points away from the target point it set. According to reports, Lee's prediction was the closest of the strategists tracked by Bloomberg.
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