Why you should buy the dip in stocks ahead of next week’s jobs report, says Fundstrat

• Investors should buy stocks ahead of next week’s May jobs report, according to Fundstrat’s Tom Lee.

• Lee said April’s Core PCE data showed inflation cooling and earlier releases provided support for stock prices.

• “We see a strong likelihood that stocks will perform well in next week’s May jobs report,” Lee said.

Investors should buy the dip in stocks ahead of the release of the May jobs report next week, according to a Friday note from Fundstrat’s Tom Lee.

The S&P500, Nasdaq100And Dow Jones Industrial Average are down 3%, 4% and 5% respectively from their recent record highs.

Lee said the slight decline in stock prices over the past week offers investors an attractive entry point, especially after the release of April’s Core PCE data, which showed a cooling in inflation, and ahead of the jobs report.

April’s Core PCE matched economists’ estimates at 0.25% month-on-month, helping to calm investor fears after a series of hot inflation reports earlier this year.

“This is the best core PCE MoM for all of 2024 and supports the idea that inflationary pressures are easing,” Lee said.

And Lee thinks future PCE reports will continue to show disinflation, which should increase the chances of Fed rate cuts later this year and support higher stock prices.

“We believe these improvements are sustainable. Housing construction is slowing at a steady pace and converging with the market-based measures, which are not showing growth rates of +6% year-on-year,” Lee said. “Core PCE ex-residential grew +0.22% month-on-month, compared to +0.31% month-on-month in March. And the year-over-year is down to 2.15% versus 2.19% year-over-year in March. So outside of the housing market, PCE inflation is on track. “

Lee analyzed the numbers and highlighted that the shares have generally performed well since the end of 2022 following the release of the monthly Core PCE reports, especially when the shares fell 1% in the five days before the release.

Of the four PCE reports since the end of 2022 where the report noted stocks down 1%, stocks rose an average of 2.3% each week after the PCE report was released.

“So we see a good chance that stocks will do well in next week’s May jobs report,” Lee said.

The May jobs report will be published on Friday, June 7. Economists’ current estimates say 175,000 jobs were added to the economy in May, with the unemployment rate stuck at 3.9%. Such a report would match the April jobs report will likely put some pressure on the Fed to cut rates as quickly as possible.

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