MW Why Tom Lee says the odds favor a stock-market rally after the Fed decision

By Steve Goldstein

Central bank could acknowledge that inflation stemming from tariffs has been minimal

Happy Fed Day to all who observe, and at least one widely followed analyst says there's potential for market fireworks despite the 98.8% probability (according to futures markets) the central bank won't move interest rates.

That analyst is none other than Tom Lee, the head of research at Fundstrat Global Advisors, whose enthusiasm for stocks generally extends to any day ending with the letter "Y."

Lee, like most everyone, isn't expecting the Fed to cut interest rates later on Wednesday. But he does make a notable case for why the market may react positively.

"We believe the Fed will acknowledge that inflation is undershooting their expectations. Recall the Fed has argued that tariff uncertainty causes them to be on hold. But incoming inflation has been soft," says Lee.

The consumer price index rose a scant 0.1% on a monthly basis in May. Import prices were flat. A real-time measure of import prices, updated through data last week, also has shown little pass through from tariffs to end prices.

Market-based measures have fallen to the lowest level in a year, he adds.

"So we think Fed will have to acknowledge this. And we know there is a lot of partisan bias in the inflation consumer surveys," says Lee. "So markets likely realize Fed will have to relent eventually and return to a dovish bias."

Lee expects the stock market to return to all-tim highs (the S&P 500 was only 3% away anyway) - he said bitcoin is a leading indicator and the cryptocurrency achievved a record last week. He still has a 6,600 target for the S&P 500 by year end.

The market

Stock-market futures (ES00) (NQ00) were edging higher after an 0.8% retreat for the S&P 500 on Tuesday. Gold (GC00) and oil (CL00) slipped.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              5982.72    -0.93%  0.71%   1.72%   9.03% 
   Nasdaq Composite                                                     19,521.09  -0.98%  1.98%   1.09%   9.29% 
   10-year Treasury                                                     4.382      -4.50   -22.30  -19.40  15.50 
   Gold                                                                 3396.8     0.62%   2.42%   28.70%  44.90% 
   Oil                                                                  72.63      6.34%   18.41%  1.06%   -10.09% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

At pixel time, the U.S. military still has not joined Israel's fight with Iran, which continued into Wednesday.

The Fed decision - and importantly, the dot plot of interest-rate projections - are due at 2 p.m. Eastern, with Fed Chair Jerome Powell's press conference at 2:30 p.m. Morgan Stanley's economists say they still expecting the dot plot to forecast two rate cuts this year.

Weekly jobless claims will be released a day early, owing to the Juneteenth market holiday on Thursday, along with the latest housing starts data.

The Senate passed the stablecoin bill, which creates a regulatory framework for cryptocurrency tokens, and now goes to the House.

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The chart

Data on the U.S. economy is clearly deteriorating, says Neil Dutta, head of economic research at Renaissance Macro. This chart plots the decline in building material sales, which at a seasonally adjusted annual rate have tumbled 7.7% over the last six months. "Recall that building material store sales represent an intermediate product that ultimately affects residential investment," he says. Besides the retail sales report, Dutta also noted the New York Fed's service sector index points on ongoing contraction, industrial production fell for the second time in three months and home builder confidence fell to the lowest level since 2022.

Top tickers

Here were the top stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   PLTR    Palantir Technologies 
   AMD     Advanced Micro Devices 
   AAPL    Apple 
   TSM     Taiwan Semiconductor Manufacturing 
   AMZN    Amazon.com 
   MLGO    MicroAlgo 
   CRCL    Circle Internet Group 

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-Steve Goldstein

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June 18, 2025 06:34 ET (10:34 GMT)

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