The bull case for stocks is alive as parts of the economy see 'outright deflation,' Fundstrat's Tom Lee says

• The bull case for stocks is alive and well, according to Fundstrat's Tom Lee.
• Lee pointed to falling prices in 40% of segments reported in the latest CPI.

The bull case for stocks this year is still alive, as parts of the economy are now seeing "outright deflation," according to Fundstrat's head of research Tom Lee.

In an interview with CNBC on Wednesday, Lee reiterated his optimistic view on the market, despite recent turbulence in stocks. His optimism stems from falling inflation, and he noted that around 40% of goods and services measured in the April Consumer Price Index were now seeing prices fall rather than just increase at a slower rate.

"I think the bull case is prevailing," Lee said. "One of the biggest applications for this CPI report is the percentage of components that are actually in outright deflation. So if you look at the price level, and then where it is now, these are off the peak."

Lee predicted the Fed would likely pause its interest rate hikes, and said there's more than a 50% chance that the central bank side-steps a recession.

Central bankers pushed interest rates up aggressively over the last year, a move that raised recession fears and pushed the S&P 500 down 20% in 2022. A drop in prices, a pullback in rate hikes, and averting a recession will likely set stocks up for fresh gains.

In March, Lee called the start of a new bull market and forecasted the S&P 500 to jump at least 20% this year and has said that the market bottomed in October of 2022.