Fundstrat head of research Tom Lee expects a zigzag movement on the stock market in December – new record levels possible

• Tom Lee expects ups and downs on the stock market in December, but also record highs
• Economic news should provide movement
• Fed FOMC meeting and press conference on December 13th in focus

Stock market in December with zigzag movement

As Fundstrat’s Tom Lee explained in a recent note, the stock market is on a zigzag path toward a record high in December. As Business Insider reports, Lee expects the S&P 500 to rise to 4,800 points. This would put the S&P 500 in the immediate vicinity of its January 2022 intraday all-time high of 4,818 points and just above its record closing high of 4,796 points. The price data for private consumer spending for October should provide the first boost, as Lee explains. These are expected to be weaker in advance.

However, the entrepreneur does not expect the potential profits to develop in a straight line. Rather, there could be downward volatility driven by new labor market data and consumer inflation data, he explains. Should the release of the two reports, scheduled for December 8 and 12, result in results above consensus estimates, this could likely lead to a rise in bond yields and a fall in stock prices. This, in turn, could be due to these developments unsettling investors about the possibility of further interest rate hikes by the Federal Reserve.

Interest rate markets remain “hyperreactive”

“The reason for the ‘zigzag’ is because we know interest rate markets are still hyper-reactive to the countervailing forces of ‘falling goods and real estate inflation’ versus resilient labor markets,” Business Insider further quoted Lee from his statement. A strong jobs report could also be expected as tens of thousands of auto industry workers were rehired in November following the end of strikes at General Motors, Ford and Stellantis.

However, any stock market losses from November’s jobs and inflation reports are likely to be temporary. Lee therefore recommends investors to buy on a decline. He believes that current data continues to support the prospect of a soft landing for the economy, although investors remain concerned about a possible recession. “We expect buying declines when markets feel selling pressure,” explains Lee. However, the solid Black Friday sales are a positive sign as they reflect continued resilience among consumers.

FOMC meeting and Fed press conference in focus

However, the main drivers of stock prices in the final month of 2023 are likely to follow on December 13, when the Fed holds its FOMC meeting and press conference. Fed chief Jerome Powell is expected to leave interest rates unchanged. Lee explains that he sees scope for a “loose turn” among Fed members. Finally, he also emphasized that despite the rise in the S&P 500 so far this year, investors have withdrawn around $240 billion from stock funds and ETFs. However, that money could ultimately serve as purchasing power for investors who missed this year’s rally and decide to push stocks higher.

Editorial team finanzen.net

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