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Tom Lee from Fundstrat predicts a 4% increase in the S&P 500 in June.
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Lee identifies five factors that could propel the stock market upwards next month.
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“We anticipate positive influences for stocks in June, therefore, seize the dip (if it occurs),” stated Lee.
Following a 5% rise in May, the stock market is set to surge an additional 4% in June, as per a Tuesday note from Tom Lee of Fundstrat.
Lee forecasts that the S&P 500 could escalate to 5,500 within the subsequent month, propelled by five positive market influences.
“We anticipate positive influences for stocks in June, therefore, seize the dip (if it occurs),” stated Lee.
The initial catalyst is bullish seasonals. Since 1927, 17 occurrences have been noted where stocks rose in the first quarter of the year and then experienced a decline in April. This pattern, which has already transpired this year, indicates potential for robust gains in May and June.
Lee points out that the success ratio of stocks rising in June is 100%, with a median increase of 3.9%. Such a surge would elevate the S&P 500 to unprecedented all-time highs.
“The seasonal argument alone is positive,” stated Lee. “That’s why we believe there’s still fuel in the tank.”
The second catalyst is inflation, or rather ongoing disinflation, according to Lee, who anticipates several favorable inflation data points in the upcoming weeks. This begins with Friday’s release of April Core PCE, followed by the release of May CPI on June 12.
A continued drop in used car prices, a spike in new car inventories, and declining trends in owners’ equivalent rent all reinforce Lee’s belief that inflation should continue to decrease. If this occurs, the probability of rate cuts should increase in the latter half of the year.
“I believe the chances of the number of Fed cuts by the end of the year will start to rise again,” stated Lee.
At present, the market anticipates just one interest rate cut in 2024, and if more rate cuts start to be factored into the market, that should serve as a boost for stocks.
The third catalyst is the low usage of leverage by investors, indicating that the kind of euphoria often seen at market peaks is currently absent. Lee highlighted that NYSE margin debt of $775.5 billion is still 17% below its 2021 peak of $936 billion.
The fourth factor that could propel stocks upwards in June is the unprecedented $6 trillion in cash sitting idle. However, Nvidia’s impressive earnings results last week could stimulate investors to finally utilize that cash and invest in stocks, according to Lee.
Lastly, the fifth factor that should propel stocks upwards in June is robust corporate earnings results, indicating that profits continue to increase.
“The earnings season demonstrates that the fundamental narrative of the economy remains intact and I believe AI is becoming stronger,” stated Lee.
With 97% of S&P 500 companies having reported first-quarter results, earnings per share have exceeded consensus estimates by 3%, and although the earnings gains were led by the Magnificent Seven stocks, the other 493 stocks in the S&P 500 delivered solid results, according to data from Bank of America.
“Furthermore, despite anxieties around high expectations for 2H, earnings estimates for the remainder of 2024 slightly increased QTD,” stated Bank of America in a Tuesday note.
Read the original article on Business Insider
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