Investors should immediately buy the stock market’s post-CPI dip, while a June rate cut still on the table, says Fundstrat

• According to Fundstrat, investors should take advantage of the inflation-driven market sell-off and buy stocks.

• Fundstrat’s Tom Lee said real progress was made in the March CPI report, suggesting disinflation will continue.

• Lee also sees a high probability of a Fed rate cut in June, despite declining odds.

Investors should buy the stock market immediately decline caused by a hot March CPI report Wednesday, according to Fundstrat’s Tom Lee.

Lee said that when you dive deep into the inflation report, which exceeded economists’ expectations by a hair, shows that disinflation continues. That suggests to Lee that the stock market decline is another buyable dip, as it was after the December, January and February CPI reports.

“Would you believe this was actually a very good CPI report? I think there is a single chart that would explain this,” Lee told clients in a video on Wednesday. “Believe it or not, this was actually a very good CPI report. And I think that’s why the stocks, which sold out today, will end up being bought.”

That chart, shown below, highlights that more underlying components of the CPI report are starting to see inflation return to its long-term trend of less than 3%.

“The forces of disinflation are very strong because we had the highest percentage of components with less than 3% annualized inflation, so in other words there are more things moving closer to trend than less,” Lee explains.

Furthermore, Lee emphasized that the The main driver of inflation in March was higher car insurance prices, which comes a few years after a surge in car prices during the pandemic.

“This higher CPI number was almost exclusively due to auto insurance. So it just tells you that this is a timing issue, it’s not structural. In other words, nothing else is causing a higher CPI,” Lee said.

Jeremy Siegel highlighted the same dynamic in an interview with CNBC on Thursday.

“Lodging and motor vehicle insurance are the two most backward-looking components of the consumer price index,” Siegel explains. “It has been verified that car insurance premiums follow the increase in used and new car prices twelve to fifteen months.”

Lee also said that a Federal Reserve rate cut in June even remains on the table as futures markets price that probability at around 20% in response to the CPI report.

“I don’t think this completely rules out the possibility of a rate cut in June,” Lee told CNBC on Wednesday, adding that the Fed will have to process three more CPI reports before the June 12 rate decision. If there is a return of disinflation, the Fed may be inclined to cut rates.

And that would be true, say market professionals Good news for share prices.

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