The S & P 500 will rally to fresh all-time highs this month as U.S. inflation continues to ease and as stocks build on their strong momentum from May, according to Fundstrat Global Advisors’ Tom Lee. Lee called for the broad market index to reach 5,500 by the end of June. The S & P 500 finished Monday’s trading session at 5,283.40 and is up about 3% over the past month. The forecast calls for upside of 4%. “I think there’s a fundamental case, which is inflation is coming in softer than expected, and I think the job market is cooling but not weakening dramatically — and I think that’s a good situation for equities,” Lee said Tuesday on CNBC’s ” Squawk Box .” “The sell-off in April, actually hasn’t really been fully recovered, and so that’s why we expected a rebound in May, but I think that carries over into June.” The broad market index fell more than 4% in April before surging nearly 5% in May to record highs above 5,300. .SPX YTD mountain S & P 500 year to date Lee noted that there is currently over $6 trillion in cash sitting in money market funds, and that margin debt is still far below its levels from October 2021. “We know investors really aren’t that long yet, so I think that comes together this month, with a pretty surprisingly robust move higher,” he said. Lee’s bullish call comes as investors keep an eye on the Federal Reserve, which is expected to start cutting interest rates as soon as September, according to the CME Group’s FedWatch tool. “If the Fed makes even just one cut this year, I think it’s really supportive of equities because it really shows the Fed is trying to sort of nurture the business cycle and it’s a good environment for stocks. I don’t think one cut or three cuts makes [it] that much different for stocks,” Lee said. “It all depends on inflation, really the edge coming off enough for the Fed to say we’re comfortable cutting this year,” he added. Lee thinks that April’s consumer price index report and personal consumption expenditures price index, both key inflation gauges, also revealed two trends the Fed has been waiting to see: First, shelter inflation is decelerating. Second, auto insurance is beginning to normalize and potentially stop contributing to inflation before the second half of the year. He said these trends should be at play in May’s upcoming CPI report, which will be out on June 12.
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