The Fed doesn't have to keep threatening hikes, says Fundstrat Co-Founder Tom Lee

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01. leads us to our talk of the tape whether the storm clouds for stocks are about to pass as earning season kicks off in Earnest next week let's ask Tom Lee fun strats co-founder and head of research welcome back it's good to see you it's been a while yeah great great to see you Scott man I'm I'm going to start calling you preent Tom I hope you don't mind because this morning at 10:23 in the morning you said possibly this is the flush bottom line possibility equities reverse into the close well it looks like you called it Tom what do you think about this reversal and what it means well I I think if we think about the data for the past week the stagflation story that gained a lot of prominence in the last 10 weeks I think has diminished a lot um because the jobs report showed good jobs but soft on wages we're making progress on the UAW strike and then of course as you know oils come off that boil and these are all pointing to an expansion that's not suffering from an acceleration of inflation uh so I think it really helps the idea that as you said maybe the flesh happened in and we can be strong into your end do you really think that this is that moment that that turn is is going to begin to happen Tom um part of the Tactical view comes from Mark Newton but I think it's it was going to be either today or early next week because we had that intraday reading of the put call Reach 1.

02. 97 only 20 times the last 30 years it's so rare but it has almost always signaled an imminent bottom and then today as you point out we had a really hot jobs number a pretty big sell off that is reversing in the face of people still saying nothing's gotten better so I do think the sellers are exhausted and there's a lot of Firepower in the sidelines and and if a few things go right I think we get a a big rally I know but the the one thing that's not really getting better and I don't want to ignore it rates are still high right so we were at 4 488 earlier today on the 10 year so we're at 477 so we've come off as you said the boil but we've still got a pot that's really uh simmering rapidly that's right I I mean these are very tight Financial conditions it's probably not a long-term killer if we were at five for years CU we know 5% is the average for 10 the tenure for the last 90 years but at the moment that change has been very restrictive um if I was to be half full on this we know this also means the FED has less work to do which means fewer hikes so in some ways as long as a market can absorb this change and it's very restrictive I mean it it's uncomfortable um I think that's positive more importantly as uh Walter deer pointed out you know when you have a parabolic rise in rates it's not going to take the escalator back down if it does peak it's going to be a sharp reversal and then of course that's that's supportive for stocks yeah you think the fed's done do you think Mary Daly was a pretty big tell yesterday in thinking that San Francisco fed president of course thinking that the move that we've seen in interest rates has caused Financial conditions to tighten substantially in her mind equal to at least one hike in rates and that now that is the prevailing thought within the room that credit conditions have tightened enough we're restrictive as you said we're done yes I I think the Fed feels that they you know since September 20th I think it was clear the market kind of got this new message well higher for longer the Market's price that in I don't know if the FED has to keep jawboning it and even threaten further hikes if it's gotten to the place it wants to be and as as you're saying when you when you have a Fed member saying it's a hike another hike on top of that means that we we're extra worried how about valuations you you comfortable where they are and and and where you know just simply relative to rates being high and you know you still believe the economy to some degree is is going to slow it's just hanging in so incredibly resilient uh it's it's stunning I don't know what else to say uh yes I I mean I know intuitively investors think PE has to come down because interest rates have gone up but history shows when when the ten year is between 3 and 1/2 and 5 1/2% the PE PE average close to 20 times part of it is something that Sheila be had written about you know it it produces Capital discipline and and that allows companies to have durable earnings which means PE should be higher but also we're in an environment where nominal growth is higher which means I I also think we're in an EPS surprise environment that's why PE should go up it's really 16 times actually less than that xfang