Investors should expect the stock market to rally this week amid two big catalysts, according to Fundstrat’s Tom Lee.
Lee expects strong earnings from Nvidia and downbeat comments from Fed Chair Jerome Powell in Jackson Hole.
“I think the Fed may be worried that something is going to happen” amid a renewed hike in interest rates, Lee told me.
The 5% sell-off in the August stock market is likely to bottom out this week and see an upside amid two big market-moving catalysts, according to Fundstrat’s Tom Lee.
The decline in stocks over the past few weeks has been driven Fitch’s downgrade of US debt, bad monsoon, 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/return has shifted positively this week. The key will be the direction of interest rates, but we see positive catalysts emerging this weekend,” Lee said.
For Nvidia, investors are eagerly awaiting the company’s second-quarter earnings results after three months It issued a surprising guidance update that brought the value of its stock to a trillion dollars. 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 investors with assurances 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 10-year US Treasury rate is currently above 4.30%, its highest level in more than 15 years, while it is the average The 30-year fixed-rate mortgage rate has risen to over 7%.
“We think the Fed is somewhat troubled by the rise in 10-year yields. This represents a meaningful tightening in financial conditions and threatens to push mortgage rates higher,” Lee said.
The increase in interest rates comes at a time Inflation has made significant headway in moving downwardIt also stirs up some painful memories of February and March, when high interest rates were the breaking point for regional banks. With the Silicon Valley bank finally collapsing.
“This 50 basis point hike in yields could spark a financial problem somewhere,” Lee said of the recent hike in interest rates, as happened earlier this year with the regional banking crisis.
Altogether, this may lead Powell to make some dovish comments during his Jackson Hole speech, such as acknowledging that progress has been made on inflation and that the Fed may be done, or almost done, with raising interest rates.
“I think the Fed is probably saying something dovish. Why? Does the Fed want to risk ‘something breaking’ ala February 2023? While some are looking back at August 2022 when Fed Chair Powell’s (Jackson Hole) statement was Tough and Miz told me the top is in 2022 (stocks are down -19% over the next 8 weeks), we think the context is the opposite.
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