"We had a huge decline in inflation, and as we argued for most of 2022, the inflation war is the war the Fed is waging and seemingly winning," he said, adding that he expects headline inflation to downshift towards 3% by the end of the year.
If consensus expectations on Wall Street turn more dovish in line with that view, stock prices could jump asHe also observed that the forward price-to-earnings ratio of the S&P 500, excluding mega-cap tech stocks, was 15.7x at the start of the year, and now stands at 16.4x, which is"barely" higher. Lee said he expects the valuation multiple to continue to expand for the stock market as corporate earnings growth inflects positively.
"We believe P/E should expand as companies are viewed as resilient and we are at the start of a new EPS cycle," he said.akin to the advent of the PC in the 1980's, the internet in the 1990's, and cloud computing in the 2010's. "AI could be the start of a supercycle," Lee said, highlighting a recent presentation from Coatue Capital."AndThe timing makes sense. AI also solves the inflation problem. By the way, doesn't this justify the surge in FAANG? Not as a bubble but as the sign of the emergence of this cycle."
Lee remains by far the most bullish market strategist this year. The average S&P 500 year-end price target is just 4,091, according to data from Bloomberg. The most bullish market strategist after Lee is Brian Belski of BMO, who has a 4,550 year-end price target for the S&P 500.