Fundstrat Head of Research Tom Lee believes the stock market has bottomed out and is on track to hit new record highs, maintaining a bold 7,300 target for the S&P 500 even as he warns of a looming macroeconomic “inflation shock.”
Following a tumultuous period marked by geopolitical conflicts and volatile oil prices, Lee sees a clear runway for equities. Speaking to CNBC, he noted that markets demonstrated impressive resilience when headwinds were at their fiercest.
“I think the bottom is in… because last week was a period where the war was getting worse and oil was going up, but stocks weren’t going down,” Lee explained.
“So I think stocks are now on the process to go back to their all-time highs. And I think maybe get to that 7,300 that we were expecting this year.”
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Lee attributes this bullish outlook to the fact that much of the market has already taken its lumps. He highlighted that roughly 70% of the S&P 500 has recently endured a “rolling bear market”—with energy and financials hit previously, followed by the Magnificent 7 and software stocks.
Because these key sectors have already repriced and gotten cheaper, Lee argues that any upcoming summer pullback “won’t be as deep.”
Moving forward, as oil cools and the yield curve flattens, he expects the Magnificent Seven and software names to catch a strong bid, leading the market’s march upward.
Despite his optimism for U.S. equities, Lee cautioned that the broader economy is not out of the woods. He anticipates that investors will increasingly favor American stocks due to their proven wartime resilience, which will fuel a market-wide “broadening trade.”
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However, he acknowledged that a significant hurdle remains. “I think there’s an inflation shock still coming,” Lee warned. While he noted the Federal Reserve is currently leaning toward holding rates steady, the impending economic ripple effect remains unpredictable.
“We just don’t know amplitude because, you know, it’s like a wave when it hits shore. Is it going to be diminished, and are people bracing for it?”
The S&P 500 index has declined 1.10% year-to-date. Similarly, the Nasdaq Composite index was down 2.58%, and the Dow Jones tumbled 0.98% YTD.
