Why you should buy the dip in stocks before next week’s jobs report, Fundstrat says

Why you should buy the dip in stocks before next week’s jobs report, Fundstrat says

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  • Investors should buy stocks ahead of next May’s jobs report, according to Fundstrat’s Tom Lee.

  • Lee said Core PCE data for April showed inflation slowing and previous releases had been supportive for stock prices.

  • “We see a strong likelihood that stocks will perform well in next week’s May jobs report,” Lee said.

Investors should buy the dip in stocks ahead of next week’s release of the May jobs report, according to a Friday note from Fundstrat’s Tom Lee.

THE S&P500, Nasdaq100And Dow Jones Industrial Average are down 3%, 4% and 5% respectively from their recent records.

Lee said the slight decline in stocks over the past week offers investors an attractive entry point, particularly after the release of April’s Core PCE data, which showed a slowdown in inflation, and ahead of the employment report.

April’s Core PCE was in line with economists’ estimates at 0.25% month-on-month, helping to ease investor fears after a series of inflation reports earlier this year .

“This is the best baseline MoM PCE for all of 2024 and supports the view that inflationary pressures are easing,” Lee said.

And Lee thinks future PCE reports will continue to show disinflation, which should increase the chances of the Fed cutting interest rates later this year and supporting higher stock prices.

“We believe these improvements are sustainable. Real estate is slowing at a steady pace and converging toward market-based metrics, which are not showing +6% year-over-year growth rates,” Lee said. “The basic PCE excluding housing increased by +0.22% over one month, compared to +0.31% over one month in March. And the year-on-year inflation rate fell to 2.15% from 2.19% year-on-year in March. So, outside of housing, PCE inflation is in line with its target. “

Lee crunched the numbers and pointed out that since the end of 2022, stocks have generally performed well following the release of monthly Core PCE reports, particularly when stocks were down 1% in the five days preceding the release.

Of the four PCE reports since the end of 2022 that included stocks down 1% before the report began, stocks were up each week after the PCE report was released by an average of 2.3%.

“So we see a strong likelihood that stocks will perform well in next week’s May jobs report,” Lee said.

The May jobs report will be released on Friday, June 7. According to current economist estimates, 175,000 jobs were created in the economy in May, with the unemployment rate stuck at 3.9%. Such a report would correspond to the April jobs report and This will likely put some pressure on the Fed to lower interest rates sooner rather than later.

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