Buy stocks in May because inflation is set to plunge through the rest of 2024, Fundstrat's Tom Lee says
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- The stock market presents a buying opportunity this month, according to Fundstrat's Tom Lee.
- That's because inflation is set to fall "dramatically" through the rest of the year, Lee predicted.
- He pointed to lags in the CPI index, with real-time prices in the economy starting to ease.
Investors should be buying stocks this month, as inflation is bound for a steep decline for the rest of the year, according to Fundstrat's head of research Tom Lee.
Speaking to CNBC on Monday, Lee pointed to March inflation numbers, with prices clocking in hotter-than-expected for the third month straight in March.
But elevated inflation readings have been largely due to lags in the official statistics, Lee argued. Real-time home and rent prices, for instance, are "stabilizing," though shelter inflation rose 5.7% year-per-year in the official March report, he noted.
Real-time price declines will eventually catch up with the official inflation report. That's bullish for stocks, as falling price growth gives the Fed more leeway to cut interest rates and loosen up its monetary policy, Lee said.
"I think inflation is going to cool pretty dramatically. I don't know when, but it'll be sometime in the second half of this year," he predicted.
Central bankers said at their latest policy meeting they needed more confidence inflation would fall back to its 2% target before mulling rate cuts. Markets are eyeing one or two rate cuts for the year, according to the CME FedWatch tool, down from as many as seven at the start of 2024.
But Fed officials could give into pressure to cut interest rates, especially when considering the impact of keeping rates too restrictive for too long, Lee suggested. High rates risk tipping the economy into a recession and sparking market volatility, as investors, banks, and consumers grapple with a higher cost of borrowing.
"I don't think the Fed is comfortable with long-term rates at these levels. It is quite high, and as you know, it's putting a lot of pressure on regional banking ... the cost of money is quite high," Lee said.
Lee is among the most bullish Wall Street forecasters in 2024. Previously, he predicted the S&P 500 could soar as high as 5,500 by the end of the year, implying another 6% gain for the benchmark index.