Tom Lee, the normally bullish co-founder of Fundstrat Global Advisors, issued a rare warning: after a record-breaking rally, the U.S. stock market faces an inevitable 20% crash. He outlined a roller-coaster timeline: the S&P 500 could rise to 7,300 in the near term before a bear market strikes later this year.
New Highs First, Then the Bear
Lee noted that software stocks, the Magnificent Seven, and crypto have already undergone a bear market, eliminating much speculative froth. Based on this consolidation, he expects a positive March for stocks and a peak at 7,300 before the eventual downturn. A key signal: when markets stop reacting positively to good news, the bear is coming.
Counterintuitive Logic: High Oil = Bullish for US Stocks
Lee offered three reasons: the U.S. is a net oil exporter, so higher oil prices benefit its economy; the U.S. grows relatively faster than oil-importing nations, attracting capital; and when global growth becomes scarce due to high oil costs, investors buy growth stocks—dominated by the U.S. market.
Tech Valuations at Cyclical Levels, Time to Buy
Lee believes software stocks have bottomed. The IGV Software ETF trades at a forward P/E of roughly 16x, akin to cyclical stocks. Given the durable business models of many software firms, he sees an attractive entry point. High oil prices, which threaten the broad economy, actually divert capital into growth stocks like tech, potentially outperforming the market.
Crypto Winter Cleared Out Speculation
On crypto, Lee admitted Bitcoin failed to act as digital gold during recent turmoil—it fell while gold rose. He attributed this to the largest deleveraging event in crypto history last October. However, he noted that extreme speculation and excessive leverage have been flushed out, leaving a healthier foundation.