Here are 5 reasons behind the stock market's recent impressive rally - and why there's more upside ahead, according to Fundstrat

• The S&P 500 has surged nearly 10% from its June low, and Fundstrat's Tom Lee thinks the rally will continue.
• Solid earnings results and signs of lower inflation are helping drive the gain in stock prices.
• Here are five reasons behind the stock market's impressive rally, according to Fundstrat.

The stock market has surged nearly 10% from its mid-June low of about 3,600, and Fundstrat's Tom Lee thinks the gains can continue into the second half of the year.

That's because things, at least for now, aren't as bad as they seem to an investor base that has been fixated on 40-year highs in inflation, swift interest rate hikes from the Federal Reserve, and growing fears of an imminent recession.

In a note on Friday, Lee gave five reasons behind what's driving the impressive rally in the stock market over the past month, which adds to Fundstrat's confidence that the bottom for the year is already in. Those reasons include:

1. "Inflation risks are abating as gasoline tanks, food prices ease.

2. "Second-quarter EPS results are better than feared with 70% beating on EPS."

3. "Many companies are reporting easing of supply chains meaning supply-chain inflationary pressures abating sharply, including semiconductor chip availability."

4. "Strategists capitulated last week with many seeing S&P 500 closing 3,800 or lower by year-end."

5. "Institutional investors are arguably near maximum pessimism given BofA gross exposure at 2008 levels."

Those five factors help explain the strength in stock prices despite June's "horrific" CPI report, Lee said, adding that Fundstrat's technical analyst Mark Newton is calling the current rally the most healthy uptrend so far this year.

Newton's confidence stems from the fact that the current rally is viewed with a healthy dose of skepticism by market participants, who were burned on prior bear market rallies in March and May.

The current rally puts the S&P 500 testing resistance at the 4,000 level, which is a key psychological level that is much closer to its all-time high of 4,800 than the 3,000 level "that many investors are waiting for," Lee said.

And with inflationary trends beginning to ease, there is less urgency and incentive for the Fed to shock the markets with elevated interest rate hikes, according to Lee. That means a Fed pivot could occur sooner than later, which would likely further support stock prices into year-end.