Weak economic data is 'ironically positive' for the stock market, Fundstrat says

• A roll-over in economic data is "ironically positive" for the stock market, Fundstrat's Tom Lee said in a note on Wednesday.
• Over the past few weeks, retail sales and consumer spending data have missed expectations.
• But as the economic recovery stalls amid a surge in daily COVID-19 cases, pressure only increases for Congress to pass more stimulus and for the Fed to remain dovish, two positive implications for the stock market, Lee said.
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A roll-over in economic data is not as bad for the stock market as some investors may think, according to a Wednesday note from Fundstrat's Tom Lee.

In fact, according to Lee, there are two big implications from a weakening economy that could actually help financial markets.

But first, the data.

Amid a renewed surge in daily COVID-19 cases, Americans are spending less, as evidenced by October retail sales data that missed analyst expectations.

US retail sales increased 0.3% in October, coming in below the consensus estimates of 0.5%. And while the month of October represented six straight months of continues retail sales growth, it also marked a sizable deceleration from September's retail sales growth of 1.6%.

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Consumer spending data from JPMorgan's credit card users shows a similar trend of deceleration over the past month and a half as extra caution due to the virus results in reduced activity levels, Lee observed.

Why isn't this weakening economic data bad for stocks?

According to Lee, the stock market not only looks at near-term weakening data, but also has its eyes on outlook in 2021, which is showing strong signs of growth.

Additionally, progress in the development of COVID-19 vaccines and treatments is accelerating, which is "arguably far more important than near-term economic data points," Lee said.

But the two biggest reasons weakening economic data could have a positive impact on the stock market is that it puts more pressure on Congress to pass a larger fiscal stimulus package, and it also keeps the Fed in the corner of easy monetary policies.

"So you can see, ironically, rolling over of the economic data has positive implications for financial markets," Lee said.

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