Fundstrat’s head of analysis Tom Lee says the inventory market is within the midst of a “most hated” rally, with skeptical traders clinging to the reason why the market ought to fall.
In a brand new replace, Lee says he believes the present surge, which lifted the S&P 500 by 17% from latest lows to inside 3% of an all-time excessive, displays a strong however underappreciated rally.
“A part of this [bearish sentiment] is comprehensible. We had a black swan occasion on post-tariff liberation day, which means an surprising occasion, and we had a 20% fall in shares in a really brief time period.”
As for what’s coming subsequent, Lee factors to historic patterns the place doubt after a market dump fueled rallies.
“When shares started to rally after March of 2020, many fund managers mentioned we’re nonetheless in a bear market.
And recall within the fall of 2022 after the markets made its low in October of 2022, lots of traders have been saying that this was simply one other bear market rally and traders are about to make a mistake…
However right here’s the truth – traders flip bullish as quickly as you make an all-time excessive. So in different phrases, traders typically struggle after a decline. They’ll struggle the rally till you make a brand new all-time excessive. At a brand new excessive, they flip they flip round and develop into bullish and I feel that that’s going to occur as quickly as markets make a brand new all-time excessive.”
Lee says Bitcoin’s latest all-time excessive above $111,000 is one other main indicator for the S&P, as a result of Bitcoin peaked a few month earlier than the S&P did they usually’re each monitoring elevated international liquidity.
As for Moody’s downgrade of US authorities debt from AAA to AA1, Lee says he doubts it’s a unfavorable sign for markets, noting that S&P first downgraded the US in 2011 and Fitch adopted in 2023.
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