Why June CPI is going to be a big moment for stock market bulls, according to Fundstrat’s Tom Lee

Fundstrat’s Tom Lee predicts that the upcoming June CPI report will reveal a further decline in inflation. Lee anticipates that this soft report will compel the Federal Reserve to implement more than two interest rate cuts this year. He describes the release of the report as a “reckoning” for investors who are anticipating a resurgence of inflation. Lee believes that the June CPI report will demonstrate a significant decrease in inflation, leading to a bullish stock market and an increased likelihood of multiple interest rate cuts from the Fed. He emphasizes that this week will be crucial in shaping investors’ perception of inflation and the state of the economy.
According to Lee, Fundstrat’s clients have expressed three main views recently. Some investors anticipate a second wave of inflation, while others expect the Federal Reserve to cut interest rates due to a weakening economy rather than controlled inflation. Additionally, there are investors who see an increasing risk of a severe economic downturn.

However, Lee noted that there is a fourth perspective, which is not widely held. This view suggests that inflation is decreasing rapidly, making Fed cuts beneficial and positive for the stock market. Lee believes that if the data aligns with their expectations this week, more people may start adopting this viewpoint.

The monthly Consumer Price Index (CPI) reports have previously triggered week-long stock market rallies in December, April, and May. During these periods, inflation showed signs of cooling at a faster rate than economists had predicted.
Economists predict that Core CPI increased by 0.21% in June, but Lee believes that any figure below 0.25% would have a positive impact on stock prices.

Lee argues that a reading between 0.20% and 0.25% would be lower than the CPI reading from the past year, except for May’s 0.16% reading.

He believes that a lower CPI reading would confirm a significant decline in inflation. Lee anticipates that the number of expected interest rate cuts will exceed two.

Lee states that if the June CPI report is weaker than expected, the number of anticipated rate cuts will increase, which would be beneficial for stocks. He suggests sticking with stocks related to AI, weight loss drugs, the financial sector, bitcoin, and related exchanges, as these sectors have shown positive performance.

JPMorgan’s trading desk also predicts that a subdued June CPI report will lead to an increase in stock prices.
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