Recent market turbulence could be cured by strong earnings from Nvidia, a positive inflation report and more encouraging news on policy, according to perpetual market bull Tom Lee. Stocks were choppy again on Tuesday as traders had to digest another sell-off from “Magnificent Seven” companies that coupled with more disturbing economic news as consumers grew more fearful that tariff-induced inflation could thwart economic growth. But Lee, the head of research at Fundstrat Global, said he still expects the market to adopt a bargain-hunter mentality as other factors remain positive. “A close watch on momentum, policy headlines, and Nvidia’s earnings will be key in determining if this pullback proves to be only a ‘flesh wound’ before markets stabilize,” Lee said Tuesday in his daily market note. “But the bigger message is that we expect investors to buy the dip. We believe this should be the key takeaway this week. And secondarily, that the market participation is broadening beyond MAG7,” Lee added. There are a few tried and true assumptions behind Lee’s expectations for a stronger market. For one, he sees the “January Barometer” that says a strong first five trading days of the year portends gains ahead holding up. Also, he said an easing of frothy market sentiment works in equities’ favor while leadership in cyclicals is another positive. Lee also is looking ahead at the Nvidia earnings report after the closing bell Wednesday. The $3.1 trillion tech leader has been getting pummeled lately, with shares off more than 10% over the past month. That is unusual heading into earnings, with the historical trend being a 16% rally from eight weeks before earnings to one month after, according to Fundstrat. NVDA 1M line Rough ride for Nvidia That means a positive surprise Wednesday could change the market tone. Wall Street expects Nvidia to post a profit of 85 cents per share on $38.1 billion in revenue, according to FactSet. The company has beaten on the top and bottom lines in 19 of the past 20 quarters. Finally, there is inflation, a key factor for markets as recent consumer surveys show expectations sharply on the rise. The Commerce Department on Friday reports the January personal consumption expenditures price index, the Federal Reserve’s principal inflation gauge. According to the Dow Jones consensus, the report is expected to show a slight easing from the January level, with the key core reading projected to drop to 2.6% annually, down 0.2 percentage points and edging closer to the Fed’s 2% goal. A lighter-than-expected reading could push the Fed to an earlier cut than the June reduction indicated by market pricing, Lee said. Traders see just a 30% chance of a May cut, according to the CME Group’s FedWatch Tool . But Lee thinks a “tame reading” could get the chance of a May cut “heading toward 100% if inflation trends continue to soften.” “This scenario would be bullish for equities,” Lee said, “supporting the notion that the recent pullback could be just a ‘flesh wound’ rather than a sustained downturn.”
