Tom Lee, co-founder and head of research at Fundstrat Global Advisors, a US investment firm, predicts that after Federal Reserve Chairman Powell signals the "first drop in September," US stocks are expected to achieve explosive gains in the next five trading days, soaring 5%.
On Thursday morning Beijing time, the Federal Reserve announced after its July interest rate meeting that it would continue to "hold its fire" and maintain the target range of the federal funds rate at 5.25% to 5.50%, consistent with market expectations. This is the highest level in over 20 years and the eighth consecutive time that the Federal Reserve has kept interest rates unchanged.
Although the Federal Reserve did not make a written commitment to cut interest rates in September, Powell stated at a press conference after the meeting that the rate cut could occur as early as the next meeting, the September meeting. And the overall view of the committee is that the economy is approaching a level suitable for interest rate cuts.
The question is whether the overall data, constantly changing outlook, and risk balance are consistent with the strengthening of inflation confidence and the stability of the labor market. If this criterion is met, we may consider lowering the policy interest rate as early as the next meeting in September, "he said.
After Powell's speech, according to the CME Federal Reserve Watch tool, the market expects the probability of a rate cut in September to rise to 86.5%.
Tom Lee, known as the "God Operator of Wall Street," stated in a report that the Federal Reserve is almost certain to cut interest rates in September, which should trigger a rebound in the stock market, especially considering that the Nasdaq 100 index has experienced a pullback of about 10% in recent weeks.
Overall, we believe that the risk on moment is approaching, "he added.
In the above report, Lee further explained the reason for his prediction: in the past two years, as long as the US stock market fell before the Federal Reserve's interest rate meeting, the highest five-day increase in US stocks after the meeting could reach 5.5%, with a median increase of 3.4%. This means that the S&P 500 index may rise by 200-300 points in the next five trading days.
In our opinion, this is very convincing, "he wrote.
Lee was one of the few bulls on Wall Street last year, predicting at the end of 2022 that the S&P 500 index would soar more than 20% to 4750 points in 2023. As expected, the index unexpectedly rose sharply last year, with the final price only slightly below its set target level by more than thirty points. According to reports, among the strategists tracked by Bloomberg, Lee's prediction is the closest and is jokingly referred to as the "genius strategist" in the industry.
He emphasized that although the 25 basis point interest rate cut may not seem significant, it has had an impact on the real world economy and may ultimately have a significant impact on the US real estate market.
The Fed's interest rate cuts, no matter how small, will help alleviate the ongoing slowdown in the housing, durable goods, and automotive markets, "he added.