Despite recent stock market selloffs, Fundstrat’s Tom Lee remains optimistic about the near-term outlook, highlighting key indicators that suggest a bottom may be forming. In a recent CNBC appearance, Lee provided insights into why the worst might already be priced in and why investors should stay the course.
Market Sentiment Shifting: Rising on Bad News
Lee acknowledges investor uncertainty due to recent tariffs and their potential economic impact. However, he notes a crucial market behavior shift: stocks are beginning to rise despite negative economic reports.
“I can understand why investors are sitting on their hands. They don’t really know how severe these tariffs will be or how long they’ll last. But now we’re seeing a big price correction and a decline in sentiment. Then something like today happens—we get a bad ADP jobs report, and the market is actually up. So we’re rising on bad news, which is a good sign that a lot of bad news is already priced in,” said Lee.
The Importance of Staying Invested
One of Lee’s most compelling arguments is the historical significance of staying invested during market downturns. According to him, missing out on just a handful of key trading days could mean the difference between a strong or weak portfolio performance.
“In my mind, we put out a piece yesterday just talking about the 10 best days that happen every year. Last year, for instance, the 10 best days added up to 21 percentage points of the S&P. Without those 10 days, the market was only up 4%. So, you know, you don’t get 20% years because it’s good throughout the year—it’s just the 10 best days,” Lee explained.
Catalysts for a Rebound: Trump Put and Fed Support
Lee believes that potential economic stall speed could trigger supportive actions from both political and monetary policymakers.
“If the economy’s near stall speed, I think people realize the Trump put does come back because otherwise, it has to unwind all this austerity. And if the job market’s soft, the Fed put comes back into play because the Fed doesn’t want to deal with stall speed. I think that’s what’s going to be the positive catalyst in the next couple of weeks.”
Stocks Bottom Before Bad News Peaks
Lee also emphasized a well-known market principle: stock prices typically bottom before the worst of the economic news emerges. If the market is no longer reacting negatively to bad news, it suggests that a lot of downside risk has already been priced in.
“So if we’re seeing the market not fade on bad news, it means we’ve already priced in a lot of things that would normally scare us,” Lee said.
Final Thoughts
With historical trends and potential policy shifts aligning in favor of a market recovery, Lee suggests that investors who remain patient and stay invested could be well-positioned to benefit when sentiment turns positive. As uncertainty lingers, watching for key catalysts and strong market days will be crucial in navigating the current landscape.
