Fundstrat’s head of research Tom Lee says the stock market is in the midst of a “most hated” rally, with skeptical investors clinging to reasons why the market should fall.
In a new update, Lee says he believes the current surge, which lifted the S&P 500 by 17% from recent lows to within 3% of an all-time high, reflects a powerful but underappreciated rally.
“Part of this [bearish sentiment] is understandable. We had a black swan event on post-tariff liberation day, meaning an unexpected event, and we had a 20% fall in stocks in a very short period of time.”
As for what’s coming next, Lee points to historical patterns where doubt after a market dump led to major rallies.
“When stocks began to rally after March of 2020, many fund managers said we’re still in a bear market.
And recall in the fall of 2022 after the markets made its low in October of 2022, a lot of investors were saying that this was just another bear market rally and investors are about to make a mistake…
But here’s the reality – investors flip bullish as soon as you make an all-time high. So in other words, investors generally fight after a decline. They’ll fight the rally until you make a new all-time high. At a new high, they turn they turn around and become bullish and I think that that’s going to happen as soon as markets make a new all-time high.”
Lee says Bitcoin’s recent all-time high above $111,000 is another leading indicator for the S&P, because Bitcoin peaked about a month before the S&P did and they’re both tracking increased global liquidity.
As for Moody’s downgrade of US government debt from AAA to AA1, Lee says he doubts it’s a negative signal for markets, noting that S&P first downgraded the US in 2011 and Fitch followed in 2023.
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