Tom Lee: The stock market bottom is in
Speakers
Tom Lee -- Head of Research, Fundstrat; CNBC Contributor
— Fundstrat co-founder
Summary
- Tom Lee asserts the stock market bottom is in, citing that stocks did not decline during war escalation and oil price spikes, a positive precondition.
- He predicts a return to all-time highs, targeting 7300 for the S&P 500 this year, driven by de-escalation in the Middle East conflict.
- Leadership since the war began: Crypto (Ethereum) and Energy stocks were top performers, followed by MAG-7, Software, and Financials.
- Energy stocks benefited from war-induced oil price increases but are expected to decline as oil cools with de-escalation.
- MAG-7, Ethereum, and Software exhibit the highest negative correlation to oil in almost a decade; they are cheap and should benefit from flattening oil prices.
- A rolling bear market has already affected approximately 70% of the S&P 500, including Energy and Financials last year and MAG-7 and Software this year, reducing potential downside.
- The war pulled forward defensive repositioning, with investors going flat or raising cash, setting the stage for a market recovery.
- Broadening trade is anticipated: more U.S. stocks will rise due to proven resilience during wartime and increased profitability in conflict.
- An inflation shock is still pending, which could negatively impact the broadening trade, but its amplitude is uncertain and may be diminished.
- Federal Reserve policy is leaning towards rate cuts, which is supportive, but the timing depends on consumer behavior and economic signals.
Trade Ideas
Tom Lee stated that Ethereum has been the "number one performing asset class" since the war started and has a high negative correlation to oil prices. As oil prices flatten or cool with war de-escalation, assets with strong negative correlation to oil, like Ethereum, are positioned to benefit and have become undervalued. LONG because it is cheap and likely to appreciate as the negative correlation dynamic plays out. If oil prices do not decline as expected or if the cryptocurrency market faces independent regulatory or market risks.
Tom Lee explicitly agreed that Energy stocks are "going to go down now for obvious reasons" as oil prices cool with war de-escalation. Energy stocks rose due to geopolitical tensions driving oil prices higher; with the conflict de-escalating, oil prices are expected to flatten or decline, leading to downward pressure on Energy stocks. SHORT because the primary catalyst for the rally is reversing, making the sector vulnerable to declines. If oil prices remain elevated due to renewed geopolitical tensions or supply constraints.
