Tom Lee Sees Fed Rate Hike Today: Predicts a Big Equity Rally

Fundstrat’s Tom Lee expects the Federal Reserve to boost rates of interest by 25 foundation factors immediately, arguing the transfer might nonetheless spark a substantial fairness rally slightly than derail one.

The Federal Open Market Committee (FOMC), the Fed’s rate-setting panel, meets immediately, with a choice anticipated at 2 p.m. ET. Lee stated the hike would take away strain for additional will increase, a shift he known as bullish for shares, since it could ship Treasury yields decrease.

Why Lee Sees the Hike as Bullish

Lee stated the Fed doesn’t have to hike to curb inflation. He cited Goldman Sachs knowledge on 4 non permanent distortions, portfolio charges, flash reminiscence, tariffs, and vitality.

Together, they add 1.7 share factors to headline Personal Consumption Expenditures (PCE) inflation.

Those distortions ought to fade inside six months no matter Fed motion, Lee stated. He estimated they might lower PCE by about 100 foundation factors on their very own.

Still, Lee stated the approaching hike doubtless displays market pressures slightly than the Fed’s personal learn on the economic system.

“I don’t know if the Fed actually must speed up that course of.”

— Tom Lee, CNBC

Lee expects markets to deal with the hike because the final of this cycle. He pointed to heavy money on the sidelines and a string of down days as gas for a rebound.

S&P 500 Target and the AI Trade

Lee reiterated his view that company earnings haven’t but peaked. He pointed to depressed housing funding as room for progress, doubtlessly including $30 to $50 to S&P earnings.

He stated the S&P 500 might high 8,200 by year-end, extending earlier bullish stock calls. Technology and software program shares, he added, are main the positive factors.

Lee added that synthetic intelligence (AI) stays central to US financial progress, at the same time as current developments increase new security and oversight questions.

Lee nonetheless expects a bigger pullback later this yr, tied to margin debt, leverage, and preliminary public providing (IPO) exercise. For now, he stated pessimism itself is why markets haven’t but peaked.

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