The S&P 500 is about to take off in a month-long rally that will retest its 2023 high, Fundstrat says

Thomas Lee Tom Lee Fundstrat

Tom Lee.Brendan McDermid/Reuters

  • The S&P 500 is about to recuperate its August losses in a rally subsequent month, Fundstrat’s Tom Lee stated.

  • He listed 4 causes for his bullish view in a be aware on Tuesday.

  • Lee beforehand predicted the benchmark index would notch a brand new all-time-high this 12 months.

Shares are about to take off in a month-long rally, which may deliver the S&P 500 again to its 2023 highs, based on Fundstrat’s head of analysis Tom Lee.

Whereas the Wall Road consensus is for a smooth September, he listed 4 causes in a be aware Tuesday to anticipate the S&P 500 to rise 2%-3% subsequent month to retake the 4,600 stage, recovering losses that shares suffered throughout the month of August.

1. The economic system is cooling off.

The Fed’s aggressive rate of interest hikes over the past 12 months and a half are working to chill off the economic system, and Lee expects extra encouraging indicators within the labor market.

He famous that the variety of job openings fell to eight.8 million, additionally coming in under the anticipated 9.5 million.

That is excellent news for equities, because the Fed has cited a decent job market to justify its rate of interest hikes, which weigh on asset costs. Greater charges have been partly accountable for the S&P 500’s dismal efficiency in 2022, the 12 months shares slid 20%.

2. The Fed will not hike rates of interest.

Markets are already pricing in low odds that the Fed will hike charges once more in September, and Lee predicted these bets will probably be slashed altogether.

“Given the glidepath of falling inflation and labor market energy, and the anticipated downshift in inflation expectations, we consider these odds will fall to 0%. And this could enable rates of interest to commensurately fall,” he stated.

Markets at the moment are pricing in 91% likelihood the Fed will maintain rates of interest stage at its September coverage assembly, and a 57% likelihood that rates of interest will keep on the present stage by the tip of the 12 months, based on the CME FedWatch device.

3. Traders have been too bearish in August.

Traders have been overly pessimistic in August. That might be a contrarian indicator that shares are set to do higher the next month.

“We consider this previous week is extra proof of the anchoring bias of ‘hawks,'” Lee added.

4. September is a traditionally sturdy month for shares.

Although shares have traditionally been weak in August, they usually rebound in September. Since 1950, the S&P 500 has risen 86% of the time in September, tacking on a median achieve of three.3%.

The approaching inventory rally may face resistance from a number of left-field dangers for markets, Lee warned, reminiscent of if the Fed surprises markets by mountaineering charges, or if the United Auto Staff union levels a strike subsequent month, which may weigh on equities.

Nonetheless, Lee stays one of the bullish forecasters on Wall Road in the mean time, and in a earlier be aware, predicted the S&P 500 will notch a brand new all-time-high this 12 months of 4,825. He made an identical name final 12 months, although the benchmark index really recorded its worst efficiency since 2008.

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