Fundstrat’s Tom Lee says he believes a major market rally is imminent, despite the recent pullback.
In a new interview with CNBC, Lee says opacity in private credit, trade tensions and a VIX spike are making investors cautious.
But he sees strong tailwinds ahead, noting that the current negative sentiment is often a contrarian buy signal.
Lee points to accelerating AI demand and many investors holding cash on the sidelines as catalysts, with only 22% of institutional investors beating benchmarks this year.
Lee also believes real credit deterioration in private credit is unlikely, saying issues are not systemic and likely won’t derail markets this quarter.
Lee forecasts the S&P 500 should hit at least 7,000 by year-end, up 5% from current levels – and with Fed easing, he says gains may reach as high as 10%.
“Five percent is just an average fourth quarter from 1950 to 2024. But we have the Fed easing after an extended pause. So that’s 1998 and 2024. So I think that 5% might be the base case.”
Lee also points to a solid start to earnings season as another catalyst.
“It’s been a good start, I mean we’re barely into earnings season. The banks have been good. 82% of companies are beating.
There’s a lot more visibility of demand and then less concerns about tariffs because we’re kind of working our way through it. So, companies have a better sort of visibility over the next 12 months.
I think the outlooks are going to be good and I think that’s going to help stocks and, I think there’s a lot of room for multiples to still expand. So, I don’t think this market’s that demanding.”
As for Bitcoin and the crypto markets, Lee says there’s been major deleveraging during the recent downturn, and leverage longs now at record lows signal a coming rebound from the bottom.
“I think that people are still licking their wounds. And I think that there’s also a bit of gold envy because as you know gold has been a huge performer this year. In fact, there’s people waiting in line to buy gold…
I think this is not the top of the crypto cycle, but leverage longs in crypto are near record lows. So I think it’s more like we’re at the basement and working our way back up.”
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