- Stocks are set to climb higher for at least the next few weeks, according to Fundstrat's Tom Lee.
- Lee pointed to the Fed's policy meeting, with markets expecting a rate cut on Wednesday.
The stock market is on the verge of a multi-week rally after a major Fed decision on interest rates is handed down 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 convene Tuesday and Wednesday to discuss their next interest rate move.
Markets are expecting the Fed to issue a 25 or 50 basis point rate cut — the first from the central bank in over four years.
"There are positive sort of supports in play," Lee said in an interview with CNBC on Friday. "We know the Fed is going to make some cuts. And with the inflation data being supportive, and the labor market needing some support, I think it's going to give the markets some confidence. I think we do kind of trade well into that meeting, and maybe a week or two after."
Wall Street has been anticipating rate cuts for months, especially as the economy has shown some weakness stemming from tighter financial conditions. While growth remains strong, the job market has slowed steadily, with new hires dropping 3.7% from levels last year in July, according to the Bureau of Labor statistics.
Markets are pricing in a 61% chance the Fed will cut rates half a percentage point on Wednesday, according to the CME FedWatch tool. However, stocks should move higher regardless of the size of the rate cut, Lee said, so long as central bankers assure markets that more cuts are coming.
"I think that a 25 or 50 has both hawkish or dovish implications," Lee said, referring to recessionary concerns that could arise if the Fed were to issue a jumbo rate move. "I think it is ultimately whether Chair Powell comes across as, this is the start of a cycle where they're confident that we're moving back towards neutral. And any number they make is actually quite dovish," he added.
The recession outlook, though, remains uncertain. New York Fed economists are pricing in a 62% chance the economy could tip into a downturn by August of next year, up slightly from odds priced in last month.
"If it seems like this is dragging on the FOMC members, and then there's concerns over a hard-landing, I think the market can view anythign they view as negative. I think it's going to come out positive though," Lee added.
Lee, who nailed his forecast for stocks last year, is also predicting a strong 2025 for the market. Volatility smoothing out 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 look to be constructive.
"Over the next 12 months, I think investors should be pretty confident," Lee said. "I think we might have turbulence now but it looks pretty good after that.