Tom Lee: 'Face Ripper' Rally Underway as Inflation Shows Signs of Hitting a Wall

A "face ripper" rally is underway as today's October CPI report vastly undershot consensus.

* Core CPI came in at +0.23% MoM vs consensus +0.30%.

* As we noted in multiple notes this week, Consensus was leaning "hotter" as many forecasts at +0.34% to +0.38%.

* The softside reading came in the right places.

-- Shelter slowed to +0.30%, among the slowest readings all year (42% weight)

- Cars still tanking used and new (>12% weight).

* But the bigger story seems to be inflation could be "hitting a wall."

-- only 7 of 31 Core CPI components saw a rise in October.

-- Wow

* This should drive a change in both Fed's view of the "stickiness" of inflation and also the market narrative.

Bottom line: We said the risk/reward was favorable into CPI because so much skepticism. Year-end rally intact.

This strengthens our base for a rally into YE. While there are some peculiar technical dynamics as noted by Mark Newton, the key in our view is:

* Investors bearishly positioned.

* Yields falling.

* We like QQQIWM -- FAANG and small-caps.

Source: Fundstrat and Bloomberg

Source: BLS