Stocks set for make or break moment this earnings season: Fundstrat

But in reality, it's inflation that's breaking, Lee said, a fact that could become clearer in the case of strong corporate earnings for the first quarter.

"It may be that 1Q2023 earnings season could act as the final 'capitulation' of the bearish view," he added, predicting stocks could see the strongest rally of the year in April. Previously, he's predicted theHis bearish view runs counter to many others on Wall Street, with earnings expectations falling for the past six months and analysts warning that high inflation could drag corporate earnings.

The core Personal Consumption Expenditures index – the Fed's preferred inflation gauge, which excludes more volatile food and energy prices – rose just 0.3% in February, cooler than the expected 0.4% increase. Meanwhile,, which also excludes housing prices, fell to 3.3% in March, the measure's lowest level since July 2022.

The labor market is also starting to soften. Job openings fell to 9.9 million in February, lower than the expected 10.5 million, Lee pointed, another sign that the economy is starting to shrink from Fed policy. Wednesday private payroll data for March showed hiring slowed last month, the latest sign that the job market is decelerating after a year of policy tightening by the Federal Reserve.

Fed officials have hiked interest rates over 1,700% in the past year to lower high prices, but dwindling inflation indicators suggest the central bank is running out of reasons to keep tightening the screws on the economy, Lee said.

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