A lot of the drivers for inflation are falling away, says Fundstrat's Tom Lee

Let's talk about that inflation and everything else with our friend Tom Lee, Fun Strat managing partner and head of research, also a CNBC contributor. Tom, what's that refrain that the cool people on the interwebs like to say elections have consequences? Well, they certainly have, at least in those markets. Do you see a risk here? Well, I do think that there is a risk that there is a conservative wave in November, not that consider that a risk to markets. I think that unlike Europe, I think that the US stock market is not going to be flummoxed by a change in parties in the White House or in Congress. And one reason for that is well one history just show that it you know regardless of outcomes equities generally do pretty well post election. But also, I think that there are maybe sectoral implications for changes in the party, but not for the economy sort of as a whole. Yeah, that's that's that's fascinating. And you and you wonder if it's because without diving into politics, Tom, I wouldn't ask you to do that. But let's be clear, from an economic policy perspective, the current guy and the former guy when it comes to trade and stuff like that are pretty much the same. That's right. I'd say when it comes to sort of global trade and sort of global dynamics, they're very similar. I think the differences come with regard to things like energy policy, where I think if Trump, you know, it wins in November, it's actually bad for energy stocks because they'd be more drilling. And I think if Trump wins in November that it would actually be good for Bitcoin. So in some ways, watching Bitcoin and energy give you some sense for how the market is sort of judging outcomes. And and if Biden wins, it's probably just kind of more of the usual because that's we have him in office now and we see what's going on. That's right. I think that that if Biden wins is that you would just have continued gridlock and potentially maybe liberal fiscal spending. And so it's not a terrible dynamic for markets and as long as inflation doesn't rear or re accelerate, it doesn't make the Feds job any harder. Well, beautiful transition from Tom Lee to Tom Lee because inflation was the topic of your big investor note today. And you said inflation seems to be falling like a rock. Why do you say that? And is that necessarily good news for stocks? Well, the reason we said that is there seems to be some skepticism from our clients about the quality of that May CPI report which came out Wednesday and the May PPI report which came out Thursday because it was such an abrupt decline in the rate of inflation from April to May. But the internals were actually much better than people realize. You know, over 55% of CPI components are now below their pre pandemic average. That means a lot of the sort of drivers for inflation are actually falling away. And in terms of what it means for markets, you're right. You know, you don't want to be in a deflationary scenario, which it's really not happening. You know, inflation is still in the high twos, but it's moving faster towards the target than the Fed realizes. That actually is somewhat constructive. Well, can you blame your clients from wanting to see if maybe a couple of months of proof because every jobs number has been basically revised the other way. You get all this crazy noisy data between the employment survey and the household survey. Nobody can seem to figure it out. I don't, I don't think it's a bad thing to to to get a couple months confirmation rather than get all joyful because, you know, used car prices might have fallen a little bit. Yeah, I mean, that's a great point. I, I think one thing that maybe investors are starting to have some tension with is this idea of data dependence because, you know, markets want policy makers to be somewhat forward-looking. And the idea that we're just looking at these backwards inflation reports and then judging what inflation is doing, it does create a lot of tension. And, you know, obviously a lot of uncertainty in bond markets. That's why, you know, rates markets have really had a hard time making heads or tails of this. I posted this to X Tom. I don't know if you had a chance to see it before you came on and I was just showing the divergent between the Dow and the NASDAQ. I know nobody cares about the Dow. It's just more like a media index. But the way the NASDAQ keeps going up, the Dow is actually down recently. Over half its stocks are down in the past three months. There's the chart. Thank you, guys. And actually, 273 of the S&P 500 are actually lower over the last 90 days. Tom, even as we make record highs, are you worried at all about just this? I know we've talked about it before, but this massive concentration at the the top and so many companies that are just not participating. Well, yeah, I I think it's, it's probably one of the sort of flying the ointments or one of the things that's getting investors nervous is that it would be better to see better breath. And of course, I'd love to see the Dow keeping up with the NASDAQ. I think part of this is that monetary policy sort of having hawkish pauses and the idea that the Fed, you know, is still keeping on the table of potential for hikes means it's really hard for stocks to break out. Because at the end of the day, CEO's have to say, well, if, if, if the feds going to be raising rates, I'm going to stay cautious. And that's what's keeping stocks cautious.