- Tom Lee sees a potential market rebound if U.S.-China tariff tensions de-escalate, despite current pessimism pricing in a 60% recession probability.
- He recommends buying oversold stocks like the Magnificent Seven, noting metrics like a high VIX and low percentage of stocks above their 200-day moving average signal strong future returns.
- Lee believes the White House and Federal Reserve are motivated to prevent severe economic damage, supporting a positive 2026 outlook with stabilizing policies.
Tom Lee, Fundstrat’s managing partner and head of research, joined CNBC to discuss the current market consolidation and its implications for investors. Addressing recent volatility, Lee acknowledged his earlier misjudgment about “Liberation Day,” apologizing publicly for underestimating its impact. He noted that markets have turned deeply pessimistic, pricing in a 60% chance of a recession, largely driven by fears of escalating tariffs. However, he believes that if tariff tensions ease, the likelihood of a downturn diminishes significantly, opening a window for a substantial market rebound.
Despite the moderator’s observation that the market feels like a bear market, with many stocks battered, Lee clarified that while sentiment aligns with a bear market, the conditions for a recession-inducing financial tightening haven’t fully materialized. He described the market’s struggles as ongoing since December, even through February’s highs, but emphasized that the current environment doesn’t yet meet the criteria for a structural collapse.
When pressed on whether investors should buy or remain cautious, Lee highlighted a tension between short-term tactical thinking and long-term optimism. Tactically, investors want confirmation of a bottom, ideally through stocks rallying on bad news. Yet, for those with a longer horizon, he expressed confidence in U.S. companies’ ability to navigate challenges. He pointed out that stocks are heavily oversold, citing metrics like the VIX at 50 and only 15% of stocks above their 200-day moving average, which historically signal strong returns over one, three, and five years.
Lee argued that the market’s fate hinges on U.S.-China tariff negotiations. If reciprocal tariffs remain high, the global economy faces trouble, justifying bearish sentiment. But if de-escalation occurs, he believes much of the downside risk dissipates, paving the way for stocks to perform well through year-end. Despite the “draconian” impact of recent policy shocks, Lee advocated buying stocks, particularly those he described as “sold out”—stocks that have already priced in significant bad news. He specifically highlighted the Magnificent Seven, including Tesla (TSLA), as a group showing signs of being washed out, with many failing to hit new lows on April 8 despite heavy selling.
Addressing concerns about damaged consumer sentiment, soaring inflation expectations, and collapsing earnings visibility, Lee acknowledged the severity of the past ten days as a high-amplitude shock. Still, he remained optimistic, suggesting the White House is now attuned to Main Street’s limits and the risks of widespread deleveraging. He believes there’s a strong chance to repair much of the damage, especially if reciprocal tariffs stabilize, tax policies shift, and regulations ease, all of which could bolster the 2026 outlook.
Lee also pointed to multiple safety nets supporting the market. He cited a Federal Reserve liquidity put, evidenced by recent Fed comments, and a policy put from the White House, which cannot afford to push the global economy to the brink. Additionally, he noted a “negotiator call,” referencing a shift from brinkmanship to more pragmatic trade discussions. For Lee, these factors, combined with oversold conditions, make the current moment an opportunity for investors willing to look beyond the immediate turmoil.
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