Stock Market Predicted to Rise 5% in December, Testing Record Highs

According to Yahoo News, the stock market is expected to increase by 5% in December, reaching record highs and causing the S&P 500 to rise to 4,800, as stated in a recent note by Fundstrat's Tom Lee. This would bring the S&P 500 close to its January 2022 all-time intraday high of 4,818 and slightly above its record closing high of 4,796. Lee believes that the upcoming release of October personal consumption expenditures price data on Thursday will be 'soft,' helping to drive stocks higher initially. However, Lee does not anticipate a straight upward trajectory for the stock market, as upcoming jobs and consumer inflation data could cause temporary downside volatility. If these reports, scheduled for release on December 8 and December 12, come in higher than consensus estimates, they could lead to increased bond yields and lower stock prices, as investors become concerned about the possibility of further rate hikes by the Federal Reserve. Despite potential short-term declines in the stock market due to the November jobs and inflation reports, Lee recommends that investors buy the dip, as incoming data continues to support a soft-landing scenario for the economy. He also notes that strong Black Friday sales indicate continued consumer resilience. The primary catalyst for a continued rise in stock prices next month is likely to be the Federal Reserve's FOMC meeting and press conference on December 13, where Fed Chairman Jerome Powell is expected to leave interest rates unchanged and a 'dovish shift' among Fed members is possible. Lee also highlights that investors have withdrawn $240 billion from equity mutual funds and ETFs this year, which could serve as buying power for those who missed out on the rally and decide to chase equities higher.