Inflation is going to fall like a rock, says Fundstrat's Tom Lee

That 5500 number, but it doesn't necessarily reflect how you you think the year is going to end. Are you going to take a look at your, your end, your end targets now? We are Carl at this early December. Last year we thought S&P could reach 5200 this year, which at the time was almost a 20% gain. We've obviously moved well above it and the fundamental picture to me looks stronger. I think earnings next year we originally thought would be 260. For 2025 it's probably closer to 275. I think the war on inflation has been meaningfully better in terms of progress. I know there was a lot of dispute, but I think the last two inflation reports and the fact that 55% of inflation components are back to pre pandemic levels means inflation is really going to fall like a rock. These are factors that get give us comfort that multiples can expand. And so I think 5200 is clearly too low, but I don't know how much above 5500 there is into your end. So I think in a couple weeks we'll be addressing that. You actually use a graphic of a falling rock in your charts to describe elements of inflation that you think are dropping. You said we're beginning to see insurance is a break waiting for shelter to follow suit. Some of your forecast, Tom, on new cars and used cars. Do you actually think we could see that kind of deflation? Yes, I think it, you know, one thing to keep in mind is that there's almost 290 million cars on the road today. So when, you know, used car prices fall 10% and they and they're continuing to fall that that's a meaningful amount of disinflation and, and may be painful for people who borrowed money to buy cars, but that is also, you know, saving people who are buying cars. And so I think there's a lot of goods disinflation in the pipeline and especially with new cars, you know, inventories have really been picking up. The CDK cyber security hack might sort of disrupted short term because there's a shortage now of new cars available, But I think the trend for new cars is also lower. So Tom, what happens to earnings estimates in in this environment? I mean, I get that it's good for the market. If inflation falls and the Fed starts cutting rates, maybe that that Trump's everything. But if the economy starts to really weaken and these these forecasts for Q2 are coming down, then what about the earnings picture? Well, it's, you know, first of all, there's always winners and losers. There's a lot of companies and sectors that have no correlation to inflation. Technology is one example. And there's many groups highly correlated to the rate of inflation, like basic materials and energy. We're not talking about overall inflation going negative. It's actually that it's going towards 2%. So there's still plenty of companies that are getting price and as you know, the biggest pressure on many companies margins has been wage pressures. That's cooling a lot and gasoline is cooling and that's really helping consumer wallet. So I think it's pretty complex. But to us, if the global economy is picking up and earnings delivered have already is suggested 270 for 2025, I still think we're maybe going to be closer to 280 next year. Tom, if markets tend to lead the fundamentals and we've run up here, you know to let's say 21 times forward earnings, why would improved earnings relative to expectations now lead to multiple expansion, you know, on top of what we've already had? It's a fair question. It's really the composition of what contributes to the gains because if you look at S&P forward, it is high. I think forward earnings multiples like 19, but the median is 16 and the median PE in the Russell 2000 is actually 11 times. So I think that there are going to be many stocks that can re rate towards 20. But this the P ES that are many stocks that are at 27 PEI mean they could increase in their multiple, but I think there'll be a lot more juice in the 16 multiple going to 20 then there is 27 going to 28. Hey, finally, Tom, five days in a row, S&P headline index and breadth have diverged. We haven't seen that kind of streak since the late 90s. Are we going to start assembling lists of analogs to the late 90s and is that a good thing? Carl, you know, you know, the late 90s didn't end well. So I think if this is going to look like the late 90s, then investors do have to be really preparing some portfolios that are appropriate for that And that you know that in the 90s, late 90s, that meant to really be patient with value and then of course, be ready to exit the high momentum. I in some ways, I think the skepticism that exists today because, you know, I, I was an analyst starting in 93. So I saw the 90s. There was a lot more ebullience back then and a lot more people who didn't think stocks could ever go down. I think there's a lot of top callers today. So for me, this this feels a lot more mid cycle. And I know it sounds surprising, but there's just too many top callers, especially among our institutional clients.