Fundstrat’s Tom Lee: ‘benign’ Fed rate cut, solid Nvidia report can fuel stock gains

Fundstrat’s Tom Lee stated the U.S. fairness market can discover additional upside from the Federal Reserve starting price cuts and an Nvidia (NASDAQ:NVDA) monetary replace that underscores strong footing for the AI funding theme.

Lee, head of analysis at Fundstrat International Advisors, appeared on CNBC on Thursday, a day after the Fed’s July assembly minutes indicated “a number of” policymakers have been prepared to begin decreasing rates of interest in September. Buyers had additionally acquired a downward revision of federal job progress estimates over the 12 months ending in March.

The “revisions that simply got here out present a whole lot of jobs disappeared. It isn’t as sturdy of a [jobs] market, and I feel it provides extra ammunition for the Fed to begin a chopping cycle,” Lee stated. “That is going to offer a whole lot of life to the financial system and to the [stock] market, particularly cyclical shares and small-cap shares,” he stated.

Lee spoke earlier than Federal Reserve Chair Jerome Powell on Friday was anticipated in his Jackson Gap symposium speech to sign by how a lot policymakers will start chopping rates of interest.

The U.S. financial system doesn’t seem like coming into a recession and the chances of a soft-landing are going up, Lee stated. “That is why this ought to be a benign chopping cycle – good for markets,” he stated.

The inventory market (SP500)(COMP:IND)(DJI) has demonstrated power by sharply snapping again from a “gut-wrenching” rout earlier this month ignited by a U.S. financial progress scare, Lee stated. A slide in expertise shares (XLK) pulled the Nasdaq Composite (COMP:IND) right into a correction, however the common has since narrowed its loss to sit down 5.5% under its all-time closing excessive.

“I feel tech continues to be in place due to AI, and Nvidia (NVDA) ought to reinforce that,” Lee stated, forward of the Aug. 28 launch of the AI chipmaker’s Q2 outcomes. Lee stated Nvidia’s (NVDA) a number of isn’t demanding.

“Nvidia is possibly 28 instances ahead earnings, which, for one of the crucial essential corporations on the earth, it’s not a excessive a number of,” he stated. “So if tech is in place, after which we get Fed cuts, I feel it permits the general market to increase.”

The S&P 500 (SP500)(SPY)(IVV) stood 1.7% under its all-time closing excessive of 5,667 as of Thursday. This 12 months, it’s risen 16.8%. The Nasdaq Composite (COMP:IND) was up 17.8% YTD as of Thursday.