July showed that markets are dealing with a growth scare rather than a recession and inflation will fall sharply going forward, Fundstrat says

Fundstrat said in a note over the weekend that the market could be looking at a growth scare instead of a full blown recession as the economy enters a technical recession.

June's inflation reading of 9.1% was the fastest rise in prices in over four decades. The policy rate was raised by 75 points last week.

Fundstrat said there are signs that the inflation fight is showing results. The stock market performance in July was the best since November 2020.

According to Fundstrat, the policy rate is expected to peak in January. Markets had previously predicted that the policy rate would peak at 3.81% in April 2023.

Tom Lee, Fundstrat's head of research, said that the bond market made a "dovish pivot" in pricing Fed funds into the future.

According to the Cleveland Federal Reserve, the July inflation rate is.27%, meaning that the annual inflation rate is currently 3.24%. That's the lowest inflation reading in a long time.

It could mean the economy is facing a "growth scare" if markets see a shift in the Fed's anti-inflation measures. The US is facing a slowdown after last year's rapid economic expansion, when the Fed injected trillions into the market.

The economy won't see a steep contraction after all.

It shows that the stock market may not fall as much as some analysts have predicted. Bank of America and Morgan Stanley both have year-end targets of 3600 and 3900. The S&P will remain stable at the 4300 level according to an outlook from Wells Fargo.