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The June CPI report will present a continued drop in inflation, based on Fundstrat’s Tom Lee.
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Lee expects a comfortable June CPI report will push the Fed to chop charges greater than two occasions this 12 months.
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“It should be per week of reckoning, and I imply a reckoning of how folks view inflation and the state of the economic system.”
The discharge of the June shopper worth index report Thursday morning will probably be a “reckoning” for buyers who count on a second wave of inflation.
That is based on Fundstrat’s Tom Lee, who instructed shoppers in a video this week that he expects the June CPI report will present that inflation is “dropping like a rock,” and that ought to result in a better inventory market and elevated chances of greater than two rate of interest cuts from the Federal Reserve this 12 months.
“It should be per week of reckoning, and I imply a reckoning of how folks view inflation and the state of the economic system,” Lee mentioned.
Lee highlighted that current conversations with Fundstrat’s consumer base largely fall into three classes: buyers who count on a second wave of inflation, buyers who count on the Fed to chop charges due to a weakening economic system and never due to tamed inflation, and buyers who see a rising danger of a tough touchdown within the economic system.
“However there is a fourth view, which is our view, and it isn’t a extensively held view, however that inflation is falling like a rock and so Fed cuts are good, and that is optimistic for shares,” Lee mentioned.
“I believe there is a good likelihood that if the information performs out the best way we predict it’s this week, there’s extra folks shifting into this camp,” Lee added.
The month-to-month CPI stories have sparked week-long inventory market rallies in December, April, and Might, when inflation confirmed indicators of cooling sooner than economists’ estimates.
Economists estimate Core CPI rose 0.21% month-over-month in June, however Lee believes any studying beneath 0.25% would assist push inventory costs greater.
“Something beneath 0.25% is a optimistic,” Lee mentioned, arguing {that a} 0.20% to 0.25% can be a decrease CPI studying over the previous 12 months other than Might’s 0.16% studying.
“It could simply affirm that inflation is falling like a rock,” Lee mentioned. “I believe the variety of anticipated cuts will exceed two.”
“If June CPI is available in comfortable, I believe this quantity [of expected rate cuts] goes greater, and that is good for shares, so we wish to keep on the right track and stick to what’s working,” Lee mentioned.
What’s working, based on Lee, are shares associated to AI, weight reduction medicine, the monetary sector, and bitcoin and proxies, like exchanges. Lee can be bullish on small-cap shares, which have badly lagged the broader inventory market rally thus far this 12 months.
JPMorgan’s buying and selling desk additionally expects a lightweight June CPI report will increase inventory costs.
In a be aware on Tuesday, the financial institution mentioned the most certainly situation, at a 35% chance, is for inflation to see a month-over-month improve of between 0.15% and 0.20%, which might probably drive the inventory market greater by between 0.50% and 1%.
“We have now had a number of former Fed governors counsel that September is suitable for a lower,” JPMorgan’s Andrew Tyler mentioned. “With this in thoughts, we stay tactically bullish, however with barely much less conviction.”
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