Tom Lee, the head of research at Fundstrat, suggests that the current stock market rally is being met with skepticism from investors who are looking for reasons why the market should decline.
Lee believes that the recent surge in the S&P 500, which has seen a 17% increase from recent lows and is now within 3% of an all-time high, is a powerful but underestimated rally.
“Part of this bearish sentiment is understandable. We experienced a black swan event post-tariff liberation day, leading to a 20% drop in stocks within a short period of time.”
Lee points to historical patterns where doubts following a market downturn have often resulted in significant rallies.
“After the market started rallying post-March 2020, many fund managers still believed we were in a bear market. Similarly, after the market hit its low in October 2022, investors dismissed it as just another bear market rally.”
“Investors tend to resist a rally until a new all-time high is reached. Once that milestone is achieved, they quickly turn bullish. I expect this pattern to repeat once the market hits a new all-time high.”
Lee also notes that Bitcoin’s recent all-time high above $111,000 could serve as a leading indicator for the S&P, as both assets are influenced by increased global liquidity.
In response to Moody’s downgrade of US government debt from AAA to AA1, Lee expresses doubt that it will have a negative impact on the markets, citing previous downgrades by S&P in 2011 and Fitch in 2023.
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