There's still 'gas in the tank' in this stock market rally, says Fundstrat's Tom Lee

Tom Lee joins us to talk about what he's seeing in the

market

s right now, he's managing partner at Funstra Global Advisor and a CNBC contributor. Tom, it's strange that we are so close to all-time highs and yet it feels like there is some nervousness. In the

market

right now, a lot of

this

is coming from higher-than-expected inflation numbers, stronger-than-expected employment reports and manufacturing numbers, which were also better than expected, making the people wonder if the FED will really be able to reduce rates. This week, does any of

this

make you nervous? I think next Wednesday Becky will really answer a lot of questions because I think you summed it up well.

Investors have been grappling with the idea that the Federal Reserve may be in a position to help you. We know how to reduce real rates if we have good economic growth because what does that mean for inflation? Next Wednesday will be the CPI for March. I think it will be the first clean CPI report this year. You know it won't have any residual seasonality. We expect it to be a pretty good report with lower than expected inflation and I think it will help investors get to this place where we can have pretty good growth in the economy.

There is some slack in labor markets, but inflation is falling fast enough. that the FED will actually cut rates this year and of course that would be great for

stock

s. I know you had been telling people to buy the dips, not that there has been a big drop if you're just talking about a few percent pullback does it matter if the FED doesn't cut rates if the economy is really strong anyway How will earnings justify valuations at this point? I think the FED supports the economy, so managing the economic cycle is The most important thing in the last two years, the Federal Reserve was fighting inflation and therefore taking an aggressive stance, were the toughest actions, but if we're in a mode where the Fed doesn't know how many cuts it needs to make but actually wants to support the business cycle which is good for

stock

s, so I don't think it's necessary to have three Ray Cuts.

You could even have a good scenario where the FED only cuts once, but if the Fed is in a position where it feels like it really needs to raise interest rates. That would be bad for stocks. Hi Tom, wait a minute, we have some breaking news. We'd actually like to hear your reaction, so if you don't mind listening, we just have some news lite

rally

coming across right now. uh, what are the diamonds Jamie uh JP Jamie diamonds JP Morgan uh is publishing its annual letter to shareholders and we want to bring you uh some of the news that is in this letter uh a very widely viewed letter annually uh Diamond writes the following, he

says

that a despite quote unsettling landscape war in the Middle East uh and Ukraine uh rising geopolitical tensions in China and polarized electorate here in the US that the US economy believes continues to be resilient and consumers continue to spend, he

says

that the market appears to be pricing in a 70 to 80% chance of a soft landing, but Diamond believes the odds are much lower.

He cites persistent inflationary pressures, including what he says are ongoing fiscal spending, the remilitarization of the world, the restructuring of global trade, and the capital needs of the new green economy. The topic of the letter is artificial intelligence. Diamond writes: "The consequences will be extraordinary," he says. JP Morgan Chase has substantially raised the stock of its AI organization with more than 2,000 machine learning experts or data scientists now on the payroll. Diamond also issues a warning quote. We will be entering one of the most treacherous geopolitical eras since World War II. He said he, too, is concerned about the large deficit supported by quantitative easing.

I will say in the article about the Second World War. He says that when terrible events happen, we tend to exaggerate or overestimate. I imagine the effects they will have on the global economy. However, recent events may be creating risks that could dwarf anything since World War II. We should not take them lightly. That's his risk manager side, but it's interesting. Jamie Diamond. I think someone who's always been pretty optimistic about the United States and the economy, his concern about some of these geopolitical events is something that's echoed by other people who are gene

rally

pretty optimistic about things, if you talk to Warren Buffett. or someone else. letter overall, I should say it's what I would describe as cautiously optimistic, yeah, I think in terms of tone, we just found what I would describe as the news in the letter, right, um, but I think in terms of tone, it's an optimistic letter you are talking about. about AI uh spend a little time this is already 20 years uh 20th anniversary uh since the bank won the deal with JP Morgan Chase uh that actually put him in charge of the company really talks about the growth of the bank, now it's the largest bank by market capitalization in the country, it goes through a lot of other pieces, management lessons and whatnot, it's a worthwhile read, by the way, there are only a few CEOs who actually write their own letters without worrying about lawyers. and many other people read it and told them what they can say and what they can't, actually writing it for them in many cases.

I mean Jamie Diamond, obviously a huge one. Warren Buffett. Jeff Bezos always wrote something very simple. It was obvious that the letter in that letter was written by him in his own voice. I think Larry Fink's letter this year was right up there with his parents at the top of the entire letter. That's why these cards are so interesting and I think the tone of your tone in the markets is one that's been pretty consistent over the last year and that's the concern that a soft landing isn't necessarily as safe as they seem. be market expectations and concerns about higher inflation, perhaps we can ask ourselves.

Tom on that right now Tom has been the bold one, although Tom has been on the other side of this Tom, what do you think? I think Jamie is doing justice to his shareholders because they want to hear from him about all the concerns that exist. I think he does a great job of detailing all the things that could go wrong, but at the end of the day, when it comes to markets, I think markets tend to worry about prices very quickly. I mean, I think that's really been the concern for the last couple of years.

This is a hard landing and now that inflationary pressures are easing at a time when consumers don't have much leverage, there's all this, there's 6 trillion cash on the sidelines and inflation we don't really know how fast it's going to rise. fall, but our bet on the Strat fund is that it's going to fall pretty quickly, which means some of the concerns he listed about a hard landing are due to persistent inflation if it's softer. I think we are going to have a pretty good economy. Is this a dual perspective on the economy and markets? Although Tom is inflation the only big problem and if Wednesday shows that it is a warmer than expected or higher than expected CPI number, would it change his ideas about what that means for both of them? of those things for the long term or for the year, um, that's right, I think that if inflation because Mark is going to be the first clean CPI report that we know of outside of Europe, they have been quite soft, they have been better than expected if If it is higher than expected then I think it raises the issue that inflation is quite persistent and getting to that 3 to 2 figure is going to be difficult, on the other hand if it is a soft report and we believe that the odds are below. a03 that's the central point of the consensus3 I think it's going to change a lot of people's opinion that inflation may not be so stubborn, yes you have been telling people to buy or you yourself have been buying on any dips and for falls we are not talking about. five or 10% declines, you are talking about 2% declines and you would be buying the market, that is correct.

I think there are many reasons why we

still

think there is gas in the

tank

in this rally. Part of it is that we think the inflation path is on a lower glide path than consensus expects, the second is that I think there's too much caution, you know, when you look at Prime brokerage loans or basically leverage in the market, it is

still

below where it was in October 2021, there is still 6 trillion cash on the sidelines and our conversations with clients remain quite cautious, so as long as investors are the most important and really see the world half empty, I think stocks can still rise on this wall of worry.