The stock market is expected to make a 5% jump in December to test record highs, according to Tom Lee, a strategist at Fundstrat. The S&P 500 is forecasted to rise to 4,800, which would bring it close to its all-time intraday high of 4,818 set in January 2022.
However, Lee warns that the upward trajectory will not be without its dips. He cautions that upcoming jobs and inflation reports could trigger a temporary sell-off. Lee advises investors to buy into any potential stock market declines, as he anticipates gains in the second half of December.
The October personal consumption expenditures price data, set to be released on Thursday, is expected to support the initial rise in stocks, according to Lee. But he also anticipates downside volatility due to the impact of upcoming jobs and consumer inflation data. If these reports come in higher than expected, it could lead to a temporary decline in stock prices.
A strong jobs report is likely on the cards due to the rehiring of tens of thousands of auto workers in November. However, Lee recommends that any stock market declines resulting from the November jobs and inflation reports will likely be short-lived, and he advises investors to buy the dip.
Further support for the stock market is expected to come from the Fed’s FOMC meeting and press conference on December 13. Lee predicts that Fed Chairman Jerome Powell will keep interest rates unchanged and anticipates a “dovish shift” among Fed members.
Despite the S&P 500 surging 20% this year, investors have pulled $240 billion from equity mutual funds and ETFs. Lee suggests that this money could serve as buying power for investors who missed out on this year’s rally and decide to chase equities higher.
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