Tom Lee: The Market May Have Already Turned

• Tom Lee believes the market should view the recent reports on tariff flexibility in a positive light, as they could lead to a mutually beneficial tariff scenario and a significant recovery rally, despite the current volatility causing investor nausea.
• He suggests that while a growth shock is underway due to deteriorating sentiment among CEOs and consumers, it could be temporary, and the market’s 10% drawdown has already priced in a 40% chance of recession, which he believes is overstated given the outperformance of China, Europe, Canada, and Mexico.
• Lee argues that the market reflects actual sentiment and CEO decisions, and an acceptable trade deal could make the US more attractive to investors seeking the best companies, blunting future trade issues.

On Friday’s “Closing Bell” on CNBC, Tom Lee, Fundstrat’s managing partner and head of research, shared his insights on the current market sentiment, the growth scare, and corporate confidence. Lee suggested that the market should interpret the recent tariff flexibility reports positively, as they could indicate a mutually agreed-upon or reciprocal tariff scenario that could be beneficial for businesses. He believes this could set the stage for a significant recovery rally.

However, Lee acknowledged the dilemma investors face with eight trading days remaining until April 2, as many are experiencing nausea from the market volatility and are tempted to throw in the towel. He pointed out that historically, markets have bottomed before the actual event occurs, citing the Cuban Missile Crisis in 1962 as an example, where the stock market bottomed seven days into the twelve-day crisis and recovered two-thirds of the losses before the resolution.

Regarding the economy, Lee expressed surprise at how quickly sentiment has deteriorated, particularly among CEOs, whose confidence has fallen, leading them to sit on their hands. He noted that while there is an impulse of a growth shock underway, it could be temporary if it doesn’t persist for months. The moderator raised concerns about skittish consumers and paralyzed CEOs, referencing Jeffrey Gundlach’s view that the chance of a recession is higher than 50% in the next few quarters.

Lee countered that the S&P’s 10% drawdown has already priced in a 40% chance of a recession, and the market doesn’t necessarily agree with Gundlach’s view, as China, Europe, Canada, and Mexico have been massively outperforming the US since February 18. He believes markets are more paralyzed than pessimistic, and a sharp stock rebound after April 2 could stave off future economic growth.

Lee emphasized that the market is a good snapshot of actual sentiment and CEO decisions, as falling stocks lead to a loss of confidence, while recovering stocks boost CEO confidence. Addressing the point about unintended consequences of the president’s rhetoric causing overseas investors to think twice about investing in the US, Lee acknowledged that Europe tends to be single stock concentrated indices, and investors seeking the best companies will still end up buying the US. He concluded that an acceptable trade deal could blunt the issue of trade in the future and make the US more attractive again.

WallStreetPit does not provide investment advice. All rights reserved.