'Inflation Is Falling Like A Rock,' Says Market Strategist Ahead Of June CPI Data: Here's Why He Thinks Market Hasn't Topped Out Yet

The all-important consumer price inflation report for June is due Thursday and a bullish market strategist said the data point will likely be a “reckoning of how people view inflation and the state of the economy.”

Inflation Falling: The June CPI report will show that inflation is “dropping like a rock,” and this should push the stock market even higher and the Federal Reserve toward more than two rate cuts this year, said Fundstrat’s Tom Lee in a video posted this week on the firm’s website exclusively to clients, reported Business Insider.

Citing conversations with clients, Lee mentioned three probable scenarios:

• investors fearing a second wave of inflation
• investors expect a Fed rate cut due to a weakening economy and not due to inflation softening
• investors seeing a hard landing.

The strategist underlined a fourth view that “inflation is falling like a rock and so Fed cuts are good, and that’s positive for stocks.” “I think there’s a good chance that if the data plays out the way we think it is this week, there’s more people moving into this camp,” he said.

A monthly headline inflation reading below 0.25% is positive, given that 0.20%-0.25% would be among the lower CPI readings this year and only worse than the May data of 0.16%.

See Also: Best Inflation Stocks

Market Still Offers Upside Potential: In a separate interview with CNBC, Lee said he disagreed with the view that the market has topped out. “The reason I might disagree that we're topping is there's no signs of euphoria,” he said, adding that institutional investors are still pretty skeptical of this market move — which is concentrated or premature —because the Fed is still not cutting or they think inflation is still a problem.

“To me that's not what you usually see at the top,” he added.

The equity market rallied hard on Wednesday as traders perceived dovishness in Federal Reserve Chair Jerome Powell’s testimony, with tech stocks leading the charge. The Nasdaq Composite, a tech-heavy index, has been closing at records for seven straight sessions and the broader S&P 500 has clocked records for six straight sessions.

What To Expect: Economists, on average, expect consumer prices to rise 3.1% year-over-year for June, slower than May’s 3.3% increase. If the number comes in line with expectations, it would mark the third straight decrease in the annual rate. Estimates range from a low of 2.70% to a high of 3.50%, for a spread of 80 bps, said financial data analytics company FactSet.

On a monthly basis the inflation rate is expected at 0.1% versus 0.0% in May. The monthly and annual core consumer price inflation rates are expected at 0.2% and 3.4%, respectively, essentially unchanged from the previous month.

JPMorgan’s trading desk predicts an S&P 500 move ranging from a 1.75% up move to a 2.50% downward move, depending on how the monthly headline rate pans out.

The SPDR S&P 500 ETF Trust (NYSE:SPY), an exchange-traded fund that tracks the S&P 500 Index, rose 0.99% on Wednesday before settling at $561.32, according to Benzinga Pro data.

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