- Weak economic data in September should keep the Fed committed to its stimulus efforts, according to Fundstrat.
- And a dovish Fed is bullish for the stock market, leading to a year-end rally as equities climb a wall of worry.
- "We expect economic data to soften, but this will be viewed positively as it tilts the Fed dovish, and hence, pushing off the taper is good for financial markets," Fundstrat said.
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A decline in economic data in September could set the stock market up for more upside into year-end as the Fed stays dovish and remains committed to its stimulus efforts, Fundstrat's Tom Lee said in a note on Wednesday.
The expiration of the eviction and mortgage moratoriums in late August represent a large unknown that will ripple across the economy, leading to soft economic data in the coming weeks, Lee said.
Lee highlighted that more than 2 million renters benefited from the eviction moratorium, and now 750,000 evictions are expected before year-end as landlords regain the ability to kick out tenants unable to pay rent.
Part of that weakness in economic data could already be seen in the collapse in consumer confidence for the month of August. The Conference Board Consumer Confidence Index missed at 113.8 versus expectations of 123 for the month of August.
The rise of the COVID-19 delta variant will also likely hamper consumer confidence in the coming months as the school year begins and daily cases remain elevated.
But the stock market should climb a wall of worry in the face of weak economic data because the Fed will be able to stay committed to its stimulus efforts, including its monthly bond purchases and low interest rates, according to Lee.
"Delaying the tapering would benefit financial markets," Lee said. The Fed is expected by many to begin lowering its $120 billion in monthly bond purchases by the end of this year or early next year, according to recent Fed minutes and comments from the Jackson Hole symposium.
"We think the biggest takeaway is that we expect economic data to soften, but this will be viewed positively as it tilts the Fed dovish. And hence, pushing off the taper is good for financial markets," Lee concluded.