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Stock futures are little changed as traders assess the prospect of higher prices

Fundstrat's Tom Lee expects a 20 percent rally this year

Stock futures were little changed on Tuesday as concern over higher rates lingered among traders.

Futures tied to the Dow Jones Industrial Average fell 60 points, or 0.2%, while the S&P 500 fell less than 0.1%. Nasdaq 100 futures hovered just above the flat line.

Atlanta Federal Reserve President Raphael Bostic said Monday that interest rates should rise above 5% and stay there for “a long time.” Meanwhile, San Francisco Fed President Mary Daly said the central bank should continue raising interest rates, albeit at a slower pace. Treasury yields rose slightly on Tuesday.

Those comments came ahead of a speech by Fed Chairman Jerome Powell scheduled for 9 a.m. ET.

Investors entered the new year worried that higher Fed interest rates could tip the economy into a recession. However, many seem to be betting that inflation will begin to slow down.

The Nasdaq Composite rose 0.6% on Wednesday, helped by a 6% rally in Tesla. Meanwhile, the Dow erased a 304-point gain to finish down nearly 113 points, while the S&P fell 0.1%.

Monday also marked the end of the first five trading days of 2023, during which the S&P 500 rose 1.1%. According to a classic stock market indicator, that kind of early strength can bode well for the rest of the year.

Tom Lee of Fundstrat called it a “strong omen” and said the market is set for a 20% rally this year.

The Fed wants economic conditions “to stay tight,” Lee said on CNBC’s “Closing Bell: Overtime.” “Dollar, stocks, bonds — everything is kind of easing, so they’re probably a little worried and they want to be sure that inflation is actually dead. But one of the changes, especially since October, is that inflation has been under fire.”

Depending on how CPI data goes on Thursday, the bond market could push the Fed to make February the last rate hike before cuts, Lee added.

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