Well, I'll be damned! Tom Lee may have been correct after all, saying this week's turbulence was a buying

opportunity. Markets are finally starting to recover. Internally, things like the RSP, which is the equal-weight S&P,

that is outperforming the market-cap-weighted S&P. Small caps are doing well; pretty much everything that's doing

well today. It comes after better-than-expected PCE data, but there is one more catalyst that could cause markets to

actually have a good next week and a good January, and I will explain that here in this video. But first, I think we

should give credit where credit is due. It looks like Tom Lee, so far, is correct, and I think you really need to

hear what Tom Lee has to say because he does point some things out in this clip that you probably do not know. It has to

do with the VIX, and when the VIX spikes the way that it did, it's only the sixth

time in the last 125 years this has happened. Historically, over the next month, stocks do very well. That's just

one thing that I found notable from this clip from Tom Lee, so take a listen. One of our next guests thinks this is a

great buying opportunity, and the Fed remains supportive. Our other thinks the Fed will be on pause for the time being

and could even hike again if inflation reignites. Joining us for more is Tom Lee, Fundstrat Global Advisor, head of research,

and a CNBC contributor, and Jeff Kilbert is founder and CEO of KKM Financial; he's a contributor as well. Tom, we'll start with

you. I take it you think this is a buying opportunity? This, uh, this is another buying opportunity in our view. 2024 has

proven to be a year where the market's been strong, and it has eluded many opportunities for sustained weakness. I

I know yesterday's pullback was really painful, but to us, I think the fundamental support for stocks is intact.

And I think it's a good opportunity for investors here. A good opportunity for investors, Jee. I take it that you

feel differently?  Putting it too strongly? Well, I don't disagree with Tom on the fundamental side of it, but I think

if you look at where we are, the interest rates, what's on the horizon from taxes, tariffs, and deficits, it really

has to be considered. What happened yesterday was the second largest move in the VIX we've seen, and historically

speaking, Kelly, Tom is right; a month after that spike in the VIX, you see the S&P 500 higher. However, I don't think we

can lean on history here due to the fact that we've seen stretched valuations in the top 10 names of the S&P 500. We've

also seen just a straight line up. If you look at the last two years—back-to-back years of above 25%—we become conditioned

that the market's just going to continue to move higher, thanks by and large to the Fed's dovish stance and their $7.7 trillion

balance sheet. So I'm looking... I know Tom wants to buy the dip here. I have the truck running, but I'm not ready to

back it up yet. I want to see this process reset valuations. I think that's going to be the next couple of months,

possibly the first quarter. Because we've become conditioned, Kelly, to markets repricing in a day, I have to go back to

my 30-year career and understand that we will see reset valuations over a quarter or two, not just a day or two. You know,

Tom, this has been a bit of a slide for the data, to put it mildly. We had

10 down days in a row. You say you saw signs of capitulation yesterday, as it was a 9% down

Day I did Tyler, um, you know, as context, the market has been bleeding lower. If you look at the metals for the last 10

days, yesterday looks capitulatory because not only did we have a 90% down day, but the VIX, the spot VIX, exploded by

75%. There's only four times in history where it's risen 60% in a day, so

yesterday was the fifth time in its 35-year history. Of those four times, the market recovered all of its losses within a

week. Three out of the four times; the fifth time... the fourth time, sorry, it took a month. So I think what you had

was people panicking to get out of what they thought was a momentum trade that's ending because we're so close to

the end. But here's the interesting thing: the VIX futures curve barely moved. So it was almost as if people were

seeking protection through the VIX yesterday. What tells you, Jeff, that more valuation resetting is to come? I think

due to the fact that we only had one down day. Typically, when you see prices reset or revalue, you have

consecutive down days, and those consecutive down days bring along margin calls. And you saw [inaudible] broker's head

talk about his concern of margin being used on the MAGA 7. So when I look at a day like today where you're seeing

passive indexes buoy the overall three major indices; Nvidia, Facebook—these names are coming back because you're seeing people deploy cash in a passive

index. So I do get concerned about that short-term volatility, but I'm going to embrace this volatility over the next

month or two because I don't think history is going to line up. This is not going to be the same way we've seen a

straight-up move ever since last November, and especially since November 5th after the election results. So I do

Have concerns short-term, but I am cautiously optimistic at 2025, but there's going to be more volatility this

was like a depth charge that went underneath the water; there will be ripple effects. Tom, let's talk about the

small caps for a minute because they have these kind of moments where they look really promising, they go on a tear,

and then it just stalls out, and a lot of investors are feeling frustrated and wonder if it's worth sticking

around. Yeah, I mean, I'd say investors are tired of having the rug pulled on small caps. Uh, yesterday's an example.

Unfortunately, when markets get nervous and they're risk-off, and of course, buyers disappear, stocks that aren't as liquid

get hit harder, and that's why the Russell not only has been sort of under pressure for a couple of weeks but really

got hit yesterday. But do we think anything has undermined what makes small caps attractive the next 5 years? It's

still in place. I mean, they've underperformed the last 10 years by the second largest magnitude in the last 125

years, except for 1998. So, not only are they derated, but now we have a roadmap

of deregulation, possible mergers, a time when financials, which is a huge weight in small caps, look more promising,

and things like biotech, which is a huge weight, also look more promising with deal activity. So I actually think this

is again another chance to buy.  Yeah, I mean, so far so good. The S&P is up

1.83% today, but but it's really the RSP that has me excited. The RSP is up

1.89% after just dying over the last like month or so. This is the equal-weighted S&P, if you're curious what RSP is.

The ticker symbol for the Invesco S&P 500 Equal Weight ETF, and we really needed to see a bounce here. Okay.

So you're getting a little bit more of a broader-based rally today, and it's because of this data that came

out. But first and foremost, we should start with the data today that is causing markets to move higher, and this

is core PCE price index month-over-month. It actually came in at 0.1%. Last month was

0.3%, and the expectation was 0.2%. So you came in better than expected on core PCE. This is the inflation

component the Fed claims to monitor the most. So I don't know if Jerome Powell just didn't get enough sleep last Wednesday,

I don't know if he was just bad with his words on Wednesday, or what the deal was, why he sounded so bearish. You know,

rightfully so, you would have assumed PCE may come in hot this morning, but in fact, it came in soft.

So I'm just confused why Powell sounded so negative when, uh, PCE came in good. So markets definitely liking this data

today. Personal income month-over-month came in at 0.3%; expectation was 0.4%.

That's not really too important, but personal spending came in at 0.4%; um, the expectation was 0.5%. So

the economy's not potentially as strong as we think. Less spending is a problem. Now, it's not a disastrous report we got

today. Okay, it missed by a tenth of 1% month-over-month; it's not terrible, but it is something we want to be watching

for, because even last month was revised lower from previously being at 0.4%; you were revised lower to

0.3%, okay, in the revision. So that's pretty interesting. Uh, PCE month-over-month on the headline basis came in at

0.1% beating estimates of 0.2%, and year-over-year PCE came in at 2.4%; the

expectation was 2.5%. So pretty much across the board, PCE came in better than

expected. US consumer sentiment rises; the University of Michigan consumer sentiment final numbers for December came in at

74.0; expectation was 74.2, and the flash was 74.0. One-year inflation

expectations came in at 2.8% versus expectations of 2.9%, and 5-to-10-year

inflation expectations came in at 3% versus expectations of 3.1%. As Zero

Hedge says here, inflation expectations rose, driven by downbeat Democrats. Democrats seem to have their inflation expectations that have really ramped up

to what looks like about 3.2% for longer-run inflation, whereas Republicans' inflation expectations have

fallen to 1.3%. So yeah, pretty remarkable kind of differential there. Now, if we actually

break apart the different components of the Michigan consumer sentiment survey, expectations came in better than expected. Consumer expectations, that is,

at 73.3; the expectation was 71.6. So that's a very good number. Current conditions came in a little bit

lower than expected at 75.1 versus the estimate of 77.7, but this is still way higher than last

month's report of 63.9. Okay, and and really the headline number kind of met expectations here. You can see 74.0 is what we got; expectation

was 74.0, and different places had different expectations, but that is again up from last month when it came in at

71.8. So pretty much across the board today, you got better-than-expected data, and that's what is helping to fuel this

The bounce we're seeing in markets is long overdue, especially for equal-weight S&P and small caps, which have been utterly destroyed recently.  The next issue

markets need to grapple with is a government shutdown. The deadline is midnight tonight. If

the government gets funded next week, it will be very positive. I think you'll see a broader-based rally; the RSP will outperform the S&P,

small caps will outperform everything, and there'll be a boost because everyone's positioning for 2025. The broader market rally

still makes a lot of sense. The small-cap trade still makes a lot of sense. AI applicators and data centers still

make a lot of sense, but these catalysts are being knocked out.  Back in 2018, Jerome Powell

upset the markets; there was a government shutdown, and the S&P fell 20%. That's bad. 800,000 government workers

were furloughed in 2018. We don't want that to happen again. But if the crisis is avoided

this weekend, I think we'll have a very strong week next week and a relatively strong January.  Before, I was concerned about a January correction.

I still think we'll get a correction in Q1, but more like the second half of February or March. I'll tell

Tom Lee was Right.. Bigger Market Rally Could Be Coming.

Scripts