Tom Lee: The Mid-Cycle Start of a New Bull Market Is Here

• Tom Lee remains bullish on the market, describing the current rally as a “most hated V-shaped rally” with shallow dips, supported by $7 trillion in cash and cautious hedge fund positioning.
• He sees stronger corporate outlooks for 2026, reduced tariff risks, and a potentially dovish Federal Reserve as key drivers for higher price-to-earnings ratios.
• Lee advocates a balanced investment approach, favoring both the Mag Seven tech stocks and small caps, which he expects to gain momentum as tariff concerns ease.

Tom Lee, Fundstrat’s managing partner, joined CNBC’s “Money Movers” to share his optimistic outlook on the stock market, emphasizing the resilience of the current rally despite tariff-related uncertainties. Lee argued that market dips will remain shallow, describing the ongoing recovery as a “most hated V-shaped rally,” a pattern he likened to previous recoveries in 2020 and 2022, which were initially met with skepticism until new highs were reached. He pointed to significant caution among hedge funds, which were forced to sell near market lows, and highlighted the $7 trillion in cash on the sidelines as evidence of untapped investor capital waiting to fuel further gains.

Despite concerns about weakening economic data and shifting fundamentals due to tariff disputes, Lee remains bullish. He noted that corporate outlooks for 2026 are stronger than they were in February 2025, citing improved visibility on deregulation and potential tax benefits. He also downplayed tariff risks, suggesting they are less severe than earlier in the year. Additionally, Lee expects the Federal Reserve to adopt a dovish stance in 2026, driven by trends in housing and core inflation, which he believes will outweigh short-term Fed decisions and support higher price-to-earnings ratios.

Addressing investment strategies, Lee advocated for a balanced approach, favoring both the “Magnificent Seven” tech stocks and small caps. He noted that the Mag Seven, having peaked and bottomed earlier than the broader S&P 500 (SPX), have led the recovery, but small caps are poised for strength in the second half of the year as tariff concerns ease and capital flows diversify. While acknowledging that tariff tensions remain unresolved, Lee believes recent court rulings may bring clarity, viewing the market’s pessimism as overblown. He described the tariff impact as “more bark than bite,” suggesting investors are overly bearish due to structural concerns like DOGE, but maintained that the market’s trajectory points to a new bull market cycle with significant upside potential.

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