The stock market will ‘zig-zag’ 5% higher toward new record levels in December, Fundstrat says

Tom Lee

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  • The inventory market is poised to leap 5% in December to check file highs, in accordance with Fundstrat’s Tom Lee.

  • Nevertheless it will not be a straight line larger, and the upcoming jobs and inflation reviews might spark a brief sell-off.

  • Lee stated traders should purchase any potential dip in shares because the second half of December ought to be full of positive aspects.

The inventory market is poised to “zig-zag” in the direction of file highs in December, with the S&P 500 rising 5% to 4,800, in accordance with a Monday word from Fundstrat’s Tom Lee.

Such a acquire would put the S&P 500 inside spitting distance of its January 2022 all-time intraday excessive of 4,818, and simply above its file closing excessive of 4,796.

October private consumption expenditures value knowledge, set to be launched on Thursday, ought to be “mushy” and assist drive shares initially larger, in accordance with Lee.

However he would not anticipate the inventory market’s potential positive aspects over the subsequent month to occur in a straight line, and stated there could possibly be draw back volatility pushed by upcoming jobs and shopper inflation knowledge.

If these two reviews, scheduled to be launched on December 8 and December 12, are available larger than consensus estimates, they’d seemingly ship bond yields up and inventory costs down as it could put traders on edge in regards to the potential for additional price hikes by the Federal Reserve.

“The explanation for the ‘zig-zag’ is that we all know charges markets remains to be hyperreactive to the opposing forces of ‘falling items and housing inflation’ in opposition to resilient labor markets,” Lee stated.

A robust jobs report could possibly be within the playing cards as a result of tens of 1000’s of auto employees had been rehired in November following the tip of strikes in opposition to Normal Motors, Ford, and Stellantis.

However any inventory market declines on the November jobs and inflation reviews will seemingly be short-lived and Lee recommends traders purchase the dip. That is as a result of incoming knowledge continues to help a soft-landing situation for the financial system, at the same time as traders proceed to be laser-focused on a possible recession.

“We’re shopping for dips if the markets see promoting stress,” Lee stated, noting that strong Black Friday gross sales are a optimistic signal as a result of it reveals continued resilience within the shopper.

The most important catalyst for a continued transfer larger in inventory costs subsequent month is prone to come on December 13, when the Fed holds its FOMC assembly and press convention, in accordance with Lee. Fed Chairman Jerome Powell is predicted to depart rates of interest unchanged, and Lee stated he sees room for a “dovish shift” among the many Fed members.

Lastly, he highlighted that regardless of the S&P 500 surging 20% up to now this yr, traders have pulled $240 billion from fairness mutual funds and ETFs. That cash might function shopping for energy for traders who missed out on this yr’s rally and determine to chase equities larger.

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