5 reasons the stock market is headed for a 4% gain in June, according to Fundstrat

5 reasons the stock market is headed for a 4% gain in June, according to Fundstrat

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  • The S&P 500 is expected to rise 4% in June, according to Tom Lee of Fundstrat.

  • Lee highlighted five catalysts that could send the stock market higher next month.

  • “We see positive supports for stocks in June, so buy the dip (if it happens),” Lee said.

The stock market is on track to rise another 4% in June after jumping 5% in May, according to a note released Tuesday by Fundstrat’s Tom Lee.

Lee said that S&P500 could rise to 5,500 over the next month, driven by five positive market catalysts.

“We see positive supports for stocks in June, so buy the dip (if it happens),” Lee said.

The first catalyst is bullish seasonality. Since 1927, there have been 17 cases where inventories increased in the first quarter of the year and then experienced a decline in April. This pattern, which has already occurred this year, bodes well for strong gains in May and June.

Lee pointed out that the success rate of stocks rising in June is 100%, with a median gain of 3.9%. Such a gain would propel the S&P 500 to new all-time highs.

“The seasonal argument alone is positive,” Lee said. “That’s why we think there’s still gas in the tank.”

The second catalyst is inflation, or rather continued disinflation, according to Lee, who expects several favorable inflation data over the coming weeks. It begins with the release of the April Core PCE on Friday, followed by the release of the May CPI on June 12.

A continued decline in used car prices, an increase in new car inventories and a downward trend in owners’ equivalent rent gives Lee confidence that inflation is expected to continue to fall. If this happens, the likelihood of a rate cut should increase in the second half of the year.

“I think the chances of the Fed making rate cuts by the end of the year are actually going to start to increase again,” Lee said.

The market currently expects just one interest rate cut in 2024, and if further rate cuts start to be priced into the market, this should act as a tailwind for stocks.

The third catalyst is the low use of leverage by investors, which suggests that the type of euphoria often seen during market peaks is nowhere to be found. Lee pointed out that NYSE margin debt of $775.5 billion is still 17% below its 2021 peak of $936 billion.

The fourth catalyst that pushed stocks higher in June was a record $6 trillion in liquidity. But Nvidia’s stunning results last week could inspire investors to finally put that money to work and buy stocks, according to Lee.

Finally, the fifth catalyst that should push stocks higher in June is strong corporate earnings results, which show profits continuing to rise.

“Earnings season shows that the fundamental story of the economy is intact and I think AI is getting stronger,” Lee said.

As 97% of S&P 500 companies reported first-quarter earnings, earnings per share beat consensus estimates by 3%, and although profit gains were led by Magnificent Seven stocks, all 493 Other S&P 500 stocks generated strong results, according to Bank of America data.

“Additionally, despite concerns over high expectations for the second half, earnings estimates for the remainder of 2024 increased slightly during the quarter.” “Bank of America said in a note Tuesday.

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