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Pro Analysis

Strategist Tom Lee, who called Trump rally, sees rising inflation, deregulation lifting stocks

President-elect Donald Trump
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President-elect Donald Trump

After being one of the very few Wall Street strategists to predict a market rally if Donald Trump won the election, Fundstrat's Tom Lee reiterated his bullish equity stance into year end due to the likelihood of rising inflation and deregulation under the new administration.

"In the days since Election Day, there has been a seismic shift in investor sentiment and for appropriate reasons. We are finally seeing a rise in inflation expectations ... to trigger the virtuous rotation into equities," Lee wrote in a note to clients Friday.

"We still see the S&P 500 rallying into YE ... rising inflation is good for stocks."

The strategist said whenever inflation begins to rise from the current low level since 1950, the market rallies 84 percent of the time and averages a 15 percent return in the following 12 months.

In addition, Lee cited the example of deregulation under Ronald Reagan, who reduced staffing at regulatory agencies by 18 percent during his two terms. Fundstrat predicts any deregulation under a Trump administration will be bullish for financials, autos and coal stocks.

Financials will benefit due to "less aggressive action under Dodd-Frank," which will free up more capital for lending, according to Fundstrat policy strategist Tom Block. Block also predicts auto and coal stocks will face lighter emission standards under Trump.

"The Trump rally has amplified the outperformance of our recommended strategies. And more or less supports our view that our analysis shows postelection trades tend to be 'continuation' trades of what had been working," he wrote.

The recommended Fundstrat strategy baskets include "Growth as cheap as Value" (stocks with both value and growth characteristics), "Stocks are the new bonds" (companies with high dividend yields) and "Laggards become leaders" (stocks that underperformed during the last four years).

Here are eight stocks in all three of these recommended strategy baskets Fundstrat highlights to take advantage of the bullish call.