Tom Lee: Equity markets will make their bottom this month
Speakers
Tom Lee — Head of Research at Fundstrat
— Fundstrat co-founder
Summary
- Tom Lee predicts the equity market will make its bottom this month, viewing higher oil prices as a catalyst for investors to rotate into US growth stocks.
- Private credit stress is negatively impacting the financial sector, but Lee does not view it as a systemic risk akin to the 2008 Great Financial Crisis.
- Cathie Wood believes the market is climbing a "wall of worry" characterized by extreme fear, presenting a buying opportunity for volatile, early-stage technology and AI companies.
Trade Ideas
"Higher oil is relatively good for US equities... as people worry about global growth slowing because of high oil, they want to own growth stocks, which actually makes them want to own the US stock market because it is a growth index, especially the Mag-7 and software." High oil prices act as a tax on global growth. When global growth slows, investors seek the safety of secular growth, driving capital into US large-cap technology and software companies that are less dependent on the broader economic cycle. LONG US technology and software indices as they benefit from a flight to growth amid global macroeconomic slowdown fears. Sustained high oil prices could lead to sticky inflation, forcing the Federal Reserve to maintain higher interest rates, which compresses the valuation multiples of growth stocks.
"Private credit's been a problem for some time... I think it's hurting financials right now, but I don't think it's a broader problem for the market or the economy." While not a systemic 2008-style crisis, ongoing stress and hidden risks ("cockroaches") in private credit portfolios will continue to weigh on the earnings and sentiment of banks and financial institutions exposed to these markets. AVOID the financial sector and specific investment banks until the extent of private credit losses is fully priced in and resolved. The market may have already priced in the worst of the private credit stress, leading to a relief rally in financial stocks if defaults come in lower than expected.
"This is a really good time to pick up on stocks that might be more volatile... This is a technology revolution, and we are not in an AI hype cycle, and we think it has miles to go." Current market fear and geopolitical uncertainties have created a "wall of worry," depressing the valuations of early-stage, disruptive technology companies. Because this volatility represents uncertainty rather than fundamental risk, it offers a discounted entry point into a long-term secular AI trend. LONG disruptive innovation and early-stage tech funds to capitalize on the ongoing AI revolution while market sentiment is overly fearful. Early-stage and unprofitable tech companies are highly sensitive to interest rates and risk-off environments; if macroeconomic conditions worsen, these stocks could face further severe drawdowns.
