Fundstrat's Tom Lee: Inflation is going to 'cool pretty dramatically' in the second half of 2024

Our next guest that feels investors are still too cautious, but he thinks that the fear of May or the sell sell in May and go away will turn into buy in May. Tom Lee is Managing Partner, Head of Research at Fundstrike Global Advisors as well as the CNBC contributor. We’ll never forget the call that that you made and it was one of many pretty good calls, but it was what the S&P was going to do near term based on inflation not being as bad as what was built in to the market. And I think you’re kind of returning to that theme and I don’t really, I’d like to know why you think that. What do you know about inflation that that the market doesn’t seem to understand right now, You you don’t think we need to be as hawkish as we are? Yes, a lot of it has to do with why CPI has remained stubbornly high. Powell talked about it that there’s this residual lag associated with housing. So even though home prices are stabilizing and rents are actually getting back to sort of traditional rates of growth, it’s still reported in CPI at close to 6%. And then the second piece is auto insurance is what Powell calls non housing services. Auto insurance is rising at 21%. Now a lot of that’s because auto insurance rates are actually jumping, but that’s not going to keep going 20% forever. Once that starts to normalize, then you can think about what median inflation is, which is running at 1.8%. So I think inflation is going to sort of cool pretty dramatically. I don’t know when, but it’ll be sometime in the second-half of this year. I think you maybe a couple months ago you weren’t quite as bullish. I’m not sure what your reason, but you came on and said it might be tougher going and we did have a series of inflation numbers that were hotter than people thought, Yes. Did we not, We did. I mean yeah. And that you think that’s not going to be the case as much from here. That’s right. I think going forward a couple of things are better. One is like the this job market wasn’t isn’t so red hot anymore. So I think the feds not on its heels as much about you know inflation could fall. And then I think that the things I mentioned housing and auto insurance are going to start to cool. So inflation prints start to look better and we know that we had a big reset in April, so I think it looks pretty good for now. You must agree, I guess, that the Fed right now is in restrictive territory because I’ve been amazed at how the default position for J Pal has been for weeks and months that we need to cut. Eventually, he never even it it. It seems like the idea of hiking has never even crossed his mind, and he took it off off the table again last week, basically. But it’s weird to me, with the economy as strong as it was and inflation as sticky as it was. I don’t know why that was his default position. I don’t know why he just wasn’t more asymmetric or symmetric. I don’t know why he just didn’t say the risks were symmetric both ways. He he seemed so sure he’s jonesing to cut rates. He’s he really wants to and the market believes him and every time he says it the market rallies and gets ahead of itself. Yes, I I mean my sort of guess is I I don’t think the feds that comfortable with long term rates at these levels. It’s, it is quite high and as you know, it’s putting a lot of pressure on regional banking. You know, I mean it’s really hurting their balance sheet. It’s the cost of money is quite high especially relative to the rest. You think we are restrictive. Yeah, I think it’s quite restrictive. Yeah, you do. And you notice whenever, you know whenever we return to OK, we’re still doing cuts and then Bitcoin though that that’s all it takes, right. The minute it looks like the the printing presses are going back on or it goes. So you’re still bullish, it’s back to, I don’t know it’s fifty, I think it was at 57, it’s back to 65 before you could blink. That’s right. I mean Bitcoin still I we think early in an upcycle. So the idea that it could get to like 150,000 this year still you know with within our base case and 150,000 in 2024 is your base case. OK, all right, go on. I didn’t and you know it. Go on, go on, go on. Don’t stop. Don’t stop. Yeah, I think it does help that the Fed is reiterating that its view on the inflation and it’s being relatively dovish is is more dovish than where the market is. So I think that’s the process of why markets are recovering because I know when they told me wrap it up and how about that? People always get mad on you say you’re going to come on on Twitter and everybody gets excited and then you’re never going along enough for these people on Twitter. Should I pay attention to him? Just one more? Yeah, please. And it has to do actually with what I saw when I was in, in Omaha this weekend with Becky. You know, one of the things Warren did was trims this, this Apple piece. And I think underneath a lot of the language that he spoke about for five hours, there was some anxiousness about the overall economy. You don’t have that anxiousness. He’s in there, has this massive portfolio, sees everything. What do you think of that? I understand where he’s coming from. I think if someone said what are they anxious about? It is the fiscal deficit, the size of the deficit. I’m not sure he’s anxious about that though. I mean, he’s anxious about that long term, but that he was even asked about that and that was not his issue. I think his issue was fundamentally I don’t want to put words in his mouth because he didn’t say there’s a lot of tea leaf reading, but just about the the strength of where the market is right now and whether it’s potentially overpriced. Well, you know he, I mean he’s steering a huge ship. So you know, he has to think in you know, longer term. But to us earnings growth is accelerating. You know, cute Q1 earnings are up 7%, but you know three groups are down 20%, you know, energy, healthcare materials, those energy and healthcare flipped a positive next quarter. So earnings growth hits 11%. We know there’s a lot of pent up demand, capital spending is picking up and the Isms are turning up and they’re six trying to cash on the sidelines and people have been cautious for more than two years now. So I think the risk rewards still pretty good. You know, I don’t know if maybe Warren’s lenses more 10 years out and that’s when you can be cautious, but I think the next year looks good.