Tom Lee, co-founder and Head of Research at Fundstrat Global Advisors, predicts a substantial market rally despite widespread investor skepticism as the S&P 500, tracked by SPDR S&P 500 (NYSE:SPY), trades within 2% of all-time highs.
What Happened: Lee wrote on X that “This remains one of the ‘most hated’ V-shaped rallies and yet we are within 2% of all-time highs.” He cited short positioning, bear sentiment, and improving macro conditions as catalysts for a possible “face-ripper rally.”
The S&P 500, closed at 5,970.37 on Tuesday, up 0.58%, while the Nasdaq-100 gained 0.79% to 21,662.58. The benchmark index reached an all-time high of 6,152.87 in February.
Speaking on CNBC, Lee emphasized the disconnect between market performance and investor sentiment. “You’d think that with the S&P doing well this week and a great May investors are bullish. They are not,” Lee said. “In our calls and zooms with portfolio managers many are still cautious because they see tariff risks ahead.”
Lee highlighted technical indicators supporting further upside. “Given the amount of cash on the sidelines, the fact that short interest is going up and we have a quiet week and markets are rallying, I think the risk is now of a substantial leg up rally from here,” he stated.
Why It Matters: Regarding tariff concerns, Lee downplayed their economic impact. He estimates a 10% tariff rate would create roughly a 1% GDP effect, comparing it to oil moving from $40 to $80. “We wouldn’t say $80 oil breaks the economy anymore,” Lee noted.
The Fundstrat strategist expects the Federal Reserve to remain dovish through 2026 as housing prices decline and deliver deflationary pressure. Housing represented 75% of inflation increases since 2019, according to Lee’s analysis.
For sector positioning, Lee favors the Magnificent Seven technology stocks alongside financials, industrials, and small caps for the second half of 2025. He views the MAG 7 as “the first to peak, the first to bottom” during recent market volatility.
Lee’s bullish outlook contrasts with mounting concerns from JPMorgan Chase Inc. CEO Jamie Dimon and others about potential bond market instability amid rising federal deficits and elevated long-term Treasury yields.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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