-
Investors should expect a rally in the stock market this week amid two big catalysts, according to Fundstrat’s Tom Lee.
-
Lee expects strong earnings from Nvidia and downbeat comments from Fed Chairman Jerome Powell in Jackson Hole.
-
“I think the Fed may be worried there might be some kind of meltdown,” Lee said, amid renewed interest rate hikes.
The stock market’s 5% sell-off in August is likely to bottom out this week and rally amid two big market-moving catalysts, according to fundstrat Tom Lee.
Stocks have been driven lower over the past few weeks Fitch downgrades its US debt rating seasonal weakness, f Slowing economic data from China. But these issues could soon be overshadowed nvidia and Jerome Powell.
In a note on Monday, Lee highlighted that Nvidia’s after-market earnings report on Wednesday and Federal Reserve Chairman Jerome Powell’s speech in Jackson Hole on Friday are significant market-shaking catalysts that could send stock prices higher.
“Equity risk/reward has shifted positively this week. The key will be the direction of interest rates but we see positive catalysts emerging this weekend,” Lee said.
As for Nvidia, investors are eagerly awaiting its second quarter earnings results, three months after the company’s announcement It issued a stunning guidance update that catapulted its stock to a trillion-dollar valuation. Lee expects good news from the company.
“We know Nvidia is going to do well,” Lee said in a video update to customers. “We just know that they sell every single chip they produce.” Lee expects the company to provide assurances to investors about the fast-growing artificial intelligence market, and that could help spark a rebound in technology stocks.
The second catalyst for investors to watch this week is Federal Reserve Chairman Jerome Powell’s speech in Jackson Hole on Friday, which comes amid a renewed hike in interest rates. The interest rate on 10-year US Treasury bonds is currently above 4.30%, its highest level in more than 15 years, while the average interest rate The 30-year fixed rate mortgage has risen solidly above 7%.
“We think the Fed is probably somewhat upset by the rise in 10-year yields. This represents a significant tightening in financial conditions and threatens to push mortgage rates higher,” Lee said.
The rise in interest rates comes at a time Inflation has made significant headway in moving downwardIt also brings back some painful memories of February and March, when rising interest rates represented the breaking point for regional banks. With the eventual collapse of Silicon Valley Bank.
“This 50 basis point increase in yields could lead to financial trouble somewhere,” he told me of the recent jump in interest rates, as happened earlier this year with the regional banking crisis.
Overall, this could lead to Powell making some dovish comments during his Jackson Hole speech, such as acknowledging that progress has been made on the inflation front and that the Fed may be done, or close to finishing raising interest rates.
“I think the Fed is probably saying something dovish. Why? Does the Fed want to risk another ‘something’ in February 2023? While some are looking at August 2022 when Fed Chair Powell’s (Jackson Hole) statement was hawkish It was a sign of the local situation.” “We will peak in 2022 (shares fell -19% over the next eight weeks), we think the context is the opposite,” Li said.
Read the original article at Business interested