Tom Lee, head of research at Fundstrat, has outlined the reasons he thinks stocks could reach a new high this month

The market is overestimating the odds that the Federal Reserve will hike interest rates in September, according to Tom Lee, head of research at Fundstrat.

There are six reasons the U.S. stock market could reach new highs in August, according to Fundstrat.

Equities have broadly flatlined over the past two months, with the S&P 500 SPX down 1% and the Nasdaq COMP down by about 2% since the beginning of June. But "as long as we have a healthy economy, consolidations are healthy," said Tom Lee, head of research at the market-strategy firm, adding that he believes stocks are poised to respond to positive catalysts.

Among those is the deleveraging of the artificial-intelligence trade, which he said is 95% complete, with a key trigger being Citadel buying Situational Awareness's AI-heavy stock portfolio after the fund suffered heavy losses, according to a Wall Street Journal report.

Another potential driver for equities this month, he said, is the response of South Korean policymakers to the 22% drop in the Kopsi index KR:180721 in July. They decided on a number of interventions at an emergency meeting held last week, including new curbs on single-stock leveraged exchange-traded funds.

"Markets stop panicking when policymakers stop panicking," Lee said, quoting billionaire hedge-fund manager David Tepper.

The fourth reason Lee gave is that just over halfway through second-quarter earnings season, the S&P 500's earnings-per-share estimates for next year have risen by $7, lowering forward price-to-earnings ratios.

Lee listed his forecast for "dovish" inflation and wage data for July as an additional potential boon for stocks.

"I think it's going to paint a picture that inflation is weakening," he said.

Lastly, Lee said that the Federal Reserve's next meeting not being until September will also help support stocks, noting that markets are currently overrating the chances of an interest-rate hike happening next month. The current probability of a rate increase is about 60%, according to the CME Group's FedWatch tool.

Lee does not expect the Fed to go in that direction. Economists often argue that increased spending on AI is driving inflation, he said, but a hike of 25 to 50 basis points is unlikely to result in a drop in capital expenditures among hyperscalers.

Lee added that while inflation is 59 basis points above target at present, airfares, shelter, apparel and recreation make up 74 basis points of the total - so if those decline, inflation moves closer to the Fed's 2% target.

-Nora Redmond