Prepare for stocks to embark on a week-long rally after the Fed cuts rates, says Fundstrat’s Tom Lee

• Shares are set to rise for at least the next few weeks, according to Fundstrat’s Tom Lee.

• Lee highlighted the Fed’s policy meeting, with markets expecting a rate cut on Wednesday.

• A Fed rate cut will be bullish for stocks, regardless of its size, he told CNBC.

The stock market is on the verge of a multi-week rally after a major Fed interest rate decision on Wednesday, according to Fundstrat’s head of research Tom Lee.

The prominent stock bull pointed to the Fed’s upcoming policy meeting, with central bankers set to meet on Tuesday and Wednesday to discuss their next interest rate move.

Markets expect the Fed to issue a rate cut of 25 or 50 basis points – the central bank’s first in more than four years.

“There are positive supports in play,” Lee said in an interview with CNBC on Friday. “We know the Fed is going to do some tapering. And with the inflation data being supportive and the labor market needing support, I think that will give the markets some confidence. and maybe a week or two after’.

Wall Street has been anticipating interest rate cuts for months, especially as the economy has shown some weakness from tighter financial conditions. While growth remains strong, the labor market has steadily slowed, with new hires falling 3.7 percent from year-ago levels in July, according to Labor Bureau statistics.

Markets are pricing in a 61 percent chance the Fed will cut rates by half a percentage point on Wednesday, according to CME’s FedWatch tool. Still, stocks should rise regardless of the size of the rate cut, Lee said, as long as central bankers reassure markets that more cuts are coming.

“I think a 25 or 50 has both hawkish and dovish implications,” Lee said, referring to recessionary concerns that could arise if the Fed were to issue a jumbo rate move. “I think ultimately it’s whether Chairman Powell meets because that’s the beginning of a cycle where they’re confident we’re going back to neutral. And any number they do is actually pretty conciliatory,” he added.

However, the recession outlook remains uncertain. Economists at the New York Fed have a 62 percent chance the economy will slip into a recession by August next year, up slightly from estimates last month.

“If it looks like this is pulling the FOMC members and then there are concerns about a hard landing, I think the market can see anything they see as negative. I think it will turn out positive, though,” added Lee.

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Lee, who made his stock forecast last year, also predicts a strong 2025 for the market. Easing volatility after the presidential election should give stocks a runway for another strong year, Lee said, especially as the Fed cuts rates and economic policies from both presidential candidates appear to be constructive.

“Over the next 12 months, I think investors should be quite confident,” Lee said. “I think we might have some turbulence now, but it looks pretty good after that.

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