Tom Lee, head of research at Fundstrat Global Advisors, is optimistic about the stock market. He believes that a lot of bad news has already been priced in, setting the stage for a significant rally in the coming months. “I am optimistic.
I mean, I can understand why investors are sitting on their hands … they don’t really know how severe these tariffs are gonna be, how long they are,” Lee said. “But, now we’re seeing a big price correction. A decline in sentiment.
And then, something like today, we got a bad ADP jobs report, and the market is actually up.”
Lee noted that stocks rising on bad news is a good sign that a lot of negative sentiments are already accounted for in current prices. He projected that March, April, and May could witness a considerable rally, with stocks potentially increasing by 10% to 15%, given the market’s recent behavior reflective of a bear market in sentiment and the unwinding of momentum trades. This week, all three major averages slid more than 1% each to start the month, with President Donald Trump’s tariffs and corresponding retaliatory tariffs on U.S. goods impacting investor sentiment and anticipated profits.
Consequently, the S&P 500 has declined 1.5% in 2025, and the Nasdaq Composite briefly entered a 10% correction from its recent high.
Market optimism despite tariff concerns
Despite these hurdles, Lee remains a buyer.
On Wednesday, all three indexes rallied, rebounding from their two-day slide, as concessions from the White House toward automakers helped soothe investor concerns. “We already know stocks will bottom before bad news peaks,” Lee explained. “So, if we’re seeing the market not fade on bad news, that means we’ve already priced in a lot of things that would scare us.”
Lee believes there’s a good chance that U.S. equities could be approaching their lowest levels for the first half of 2025 this week.
He attributed current market uncertainty to investors processing multiple risk factors, particularly concerns about Trump’s tariff plans and their potential economic impact. However, he noted that retail sentiment has reached bearish levels comparable to the fall of 2022, suggesting excessive pessimism. “Retail sentiment is at the levels that were at the depths of that recent bear market,” Lee said.
“Investors view this as a crisis when it’s really a growth scare.”
While acknowledging employment challenges ahead, Lee identified potential investment opportunities, particularly in financial stocks. “I think sleeper winners from all of this are going to be the financials because they’ve underperformed the last 15 years,” he said, noting that many banks have demonstrated profitability despite challenging conditions. Lee also highlighted opportunities in digital assets and small-cap companies, particularly those focused on the American market, which could benefit from lower interest rates and attractive valuations once tariff concerns subside.
