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Tom Lee remembers the three days of terror well.
It was early August when Japan’s Nikkei 225 index plunged to its worst day since the 1987 crash.
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“There were three days of panic in the market, after the FOMC meeting, leading up to Black Monday in Tokyo,” Lee, head of research at Fundstrat Global Advisors, said in an interview. CNBC August 22 Interview.
“It was very painful, but we ultimately viewed it as a source of fear for growth because we didn’t think the U.S. was going into a recession, which is what a lot of people thought after the jobs report,” he said.
On July 31, Federal Reserve Chairman Jerome Powell paved the way for the central bank’s first interest rate cut in four years, citing greater progress toward lowering inflation as well as a cooler labor market that no longer threatens to overheat the economy.
However, the Fed left its key interest rate unchanged at a 23-year high of 5.3%, and Powell said that if inflation continues to decline, “a rate cut could be on the table” when the Fed next meets on September 17-18.
(On August 23 Powell drops his strongest hint yet (The central bank is prepared to cut its benchmark lending rate.)
TheStreet / NYSE / Tom Lee
Analyst Lee: “Technology is in a good place”
Investors also received a downward revision to federal job growth estimates for the 12 months ending in March, as Government employment data An additional 818,000 deaths were reported between April 2023 and March 2024.
“I think people thought there was a systemic risk because of what was happening to the yen, but the markets have shown a lot of resilience since then. I mean the fact that we’ve bounced back so sharply shows how strong this market is,” he told me.
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On August 23, Powell took the stage at the central bank’s annual meeting in Jackson Hole with renewed confidence that the economy was poised, albeit delicately, for a soft landing—easing inflation without a recession.
The minutes of the US Federal Reserve’s monetary policy meeting last July, held on August 21, showed a clear shift towards the “full employment” side of the central bank’s mandate.
The minutes noted that the “vast majority” of Fed officials “noted that if data continued to flow as expected, it would likely be appropriate to ease policy at the next meeting.”
The minutes showed Fed staff saying the labor market was strong, while the jobs report and subsequent revision showed “a lot of jobs disappearing,” he told me.
“It’s not a strong market and I think it gives more ammunition to the Fed to start a easing cycle and that will give a lot of life to the economy and the markets – especially cyclical stocks and small-cap stocks,” he said.
The Russell 2000 ended Friday’s trading up 3%.
“Technology is in a good place,” he told me, thanks to AI and AI chip giant Nvidia. (NVDA program) “This should be strengthened.”
“It’s not a demanding multiple. Maybe 28 times future earnings, which is not a high multiple for one of the most important companies in the world. So if technology is doing well and then the Fed cuts rates, I think that allows the overall market to expand,” he said.
Nvidia will report its second-quarter financial results on August 28.
He tells me the job market depends on the Fed.
He told me that the chances of a soft landing are increasing and “that’s why this should be a virtuous cycle of reduction” which is good for the markets.
“But I think the key is for the Fed to stop being so data-driven because data-driven is the reason they missed the inflation shift and I think they’re now missing the soft landing,” he added.
“The futures markets are showing more than two rate cuts, so I think the Fed is probably a little bit behind the curve and we know there’s been a slump in housing sales, durable goods and autos, so there’s been a lot of pain there,” he told me.
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“So cutting production more aggressively would actually make sense, at least from a market perspective,” he added.
Lee noted that unemployment is greatly affected by how the Fed communicates with CEOs “because a lot of companies are cautious with this tight monetary policy and tight real interest rates.”
“That makes them reluctant to expand, so the labor market itself is somewhat dependent on what the Fed does, and once the labor market starts seeing higher unemployment, things could get worse,” he added.
He told me that the rise in gold prices shows “there is a lot of fear in the market,” because “gold is almost a barometer of bearish sentiment.”
Tom Lee talks about the November election
On politics, Lee said markets believe former President Donald Trump’s chances of winning the November presidential election against Vice President Kamala Harris are stronger than polls show.
“I think as the market becomes more convinced of that… you’ll see cyclical stocks do better, small caps do better, bitcoin does better because those are really clear political differences.”
Nearly half of the money flowing into the election came from the crypto industry, according to a report by the nonprofit watchdog group. General citizen.
Trump said last month at a Bitcoin conference in Nashville that if he returned to the White House, he would ensure that the federal government never sells its Bitcoin holdings.
“I think over the last few days it’s seemed to me that the market is betting that Trump’s chances are going to be better than the polls are,” he added.
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