- The S&P 500 has surged practically 10% from its June low, and Fundstrat’s Tom Lee thinks the rally will proceed.
- Strong earnings outcomes and indicators of decrease inflation are serving to drive the achieve in inventory costs.
- Listed below are 5 causes behind the inventory market’s spectacular rally, in line with Fundstrat.
The inventory market has surged practically 10% from its mid-June low of about 3,600, and Fundstrat’s Tom Lee thinks the features can proceed into the second half of the yr.
That is as a result of issues, no less than for now, aren’t as unhealthy as they appear to an investor base that has been fixated on 40-year highs in inflation, swift rate of interest hikes from the Federal Reserve, and rising fears of an imminent recession.
In a word on Friday, Lee gave 5 causes behind what’s driving the spectacular rally within the inventory market over the previous month, which provides to Fundstrat’s confidence that the underside for the yr is already in. These causes embrace:
1. “Inflation dangers are abating as gasoline tanks, meals costs ease.
2. “Second-quarter EPS outcomes are higher than feared with 70% beating on EPS.”
3. “Many corporations are reporting easing of provide chains which means supply-chain inflationary pressures abating sharply, together with semiconductor chip availability.”
4. “Strategists capitulated final week with many seeing S&P 500 closing 3,800 or decrease by year-end.”
5. “Institutional traders are arguably close to most pessimism given BofA gross publicity at 2008 ranges.”
These 5 elements assist clarify the energy in inventory costs regardless of June’s “horrific” CPI report, Lee stated, including that Fundstrat’s technical analyst Mark Newton is looking the present rally essentially the most wholesome uptrend up to now this yr.
Newton’s confidence stems from the truth that the present rally is seen with a wholesome dose of skepticism by market individuals, who had been burned on prior bear market rallies in March and Might.
The present rally places the S&P 500 testing resistance on the 4,000 degree, which is a key psychological degree that’s a lot nearer to its all-time excessive of 4,800 than the three,000 degree “that many traders are ready for,” Lee stated.
And with inflationary traits starting to ease, there may be much less urgency and incentive for the Fed to shock the markets with elevated rate of interest hikes, in line with Lee. Meaning a Fed pivot might happen before later, which might possible additional help inventory costs into year-end.