Economy, Fed and inflation
Recent data supports Lee’s positive assessment of the economy. In Q4 of 2023, real GDP in the U.S. grew at an annual rate of 3.3% according to the Commerce Department’s advance estimate. This growth significantly exceeded economists' expectations of a 2% increase.
Lee's confidence in the stock market is further bolstered by the U.S. Federal Reserve's stance. After substantial interest rate hikes in 2022 and continuing into mid-2023 aimed at curbing inflation, the central bank's approach has softened. Lee noted, “The Fed I think has turned dovish, we don't know the timing of the first cut. Inflation I think is falling basically like a rock.”
Read more: Thanks to Jeff Bezos, you can now cash in on prime real estate — without the headache of being a landlord. Here's how
The headline inflation rate has indeed subsided. In December, the U.S. consumer price index saw an annual increase of 3.4%, down from its peak 9.1% increase in June 2022.
Lee does not speculate on when the Fed might start lowering rates and believes the timing is inconsequential.
“I think that the stock market really should just care that the Fed has gone from fighting inflation and almost giving the economy a heart attack to one where they're trying to manage the business cycle. So if they don't feel comfortable doing this cut in March, and instead in May, I don't think it should have any effect on equities and how they do today,” he explained.
$6 trillion on the sidelines
Lastly, Lee suggests that the substantial funds parked in money markets could be a potential catalyst if redirected towards stocks.
“We know there's a lot of cash on the sidelines because there's over $6 trillion sitting in money markets,” he stated.
When interest rates are high, investors are drawn to money markets due to their appealing returns. However, Lee contends that these returns are modest compared to the gains from stocks, pointing out, “The S&P in the last six weeks generated more return than an entire year of owning money market cash.”
What to read next
- A Pennsylvania trio bought a $100K abandoned school and turned it into a 31-unit apartment — but here's a much simpler way to earn real estate riches without a mountain of red tape
- Car insurance rates have spiked in the US to a stunning $2,150/year — but you can be smarter than that. Here’s how you can save yourself as much as $820 annually in minutes (it's 100% free)
- Even your credit card interest is accumulating interest as you read this — stop this 'bad compounding' today by paying off your card fast and saving thousands in interest. Here's how