Stock Market Rally Continues: Analyst Updates Outlook
In a recent interview with CNBC, Fundstrat’s Tom Lee updated his stock market forecast following the US strikes on Iranian nuclear facilities. Despite rising geopolitical tensions and increased oil prices, Lee remains bullish on the market, citing various reasons why he believes stocks will continue to trend higher.
Stocks Digesting Bad News, But Still Trending Higher
The stock market has been on a wild ride in 2025, with a nearly 20% decline through early April due to tariff announcements by President Donald Trump. However, instead of more losses, the market reversed, gaining almost 20% since April 9 when President Trump paused most of the reciprocal tariffs announced on April 2.
Lee’s prediction that stocks would look past tariffs and head higher proved particularly prescient, as the S&P 500 trended higher despite the initial decline. The analyst’s long experience in the market has allowed him to navigate various economic downturns, including the bear market bottom in 2023 and the rally in 2024.
Fed Caught in a Bind: Waiting for Inflation Signs
The Federal Reserve has had its work cut out for it over the past few years, launching hawkish monetary policy since the 1980s after inflation spiked following Covid-era stimulus payments and zero interest rate policy. The rate hikes successfully muscled inflation to below 3% from over 8%, but inflation progress has stalled, and newly enacted tariffs have many expecting inflation will increase in the coming months.
The decision to keep rates at their current 4.25% to 4.5% level could backfire, pushing the Fed behind the curve, given the economy is also showing worrisome signs. In May, both the ISM Manufacturing and Services PMIs were below 50, signaling contraction. Furthermore, consumer confidence, while rebounding from its April low, is still troublesome.
Economists Expect Slowdown: World Bank Reduces US GDP Outlook
The potential for the US economy to slow isn’t lost on economists. The World Bank reduced its outlook for US GDP to 1.4% this year, down from 2.8% growth in 2024. The Fed similarly predicts 1.4% growth, down from 2.1% in December. This has added to the uncertainty surrounding the market, but Lee remains optimistic.
Lee’s Experience and Perspective: Predicting Market Trends
Lee’s been-there-done-that background helped him predict that the bear market would end in 2022, setting the S&P 500 up to rally in 2023, and that stocks would continue to climb in 2024, even as many thought it would stall. His long experience in the market means he’s navigated various economic downturns, including the Internet boom and bust, the Great Financial Crisis, and the Covid-drop.
Markets Already Priced In Geopolitical Risks: Lee
Lee doesn’t necessarily think that markets will decline as a result of geopolitical risks in the Middle East. He cited a quip from long-time NYSE floor trader Art Cashin, "sell the buildup, buy the invasion," to explain why he wasn’t surprised that stocks moved up despite the recent news.
Speculative Fervor Building: But Market Not Stretched
Lee wouldn’t be surprised if stocks continued their winning ways. While he sees some speculative fervor building, including a return of SPAC listings and names like Circle Internet surging 74% over the past five days on passage of stablecoin legislation, he thinks the market isn’t nearly as stretched as it was when speculation ran rampant in 2021.
"There’s actually a lot less risk taking by institutional investors," said Lee. "High net worth is not really that invested and institutions are still pretty cautious." He believes that there’s more visibility on tariffs and "we have regulation and tax legislation visibility into 2026."
Consumers Expect Higher Inflation: Providing Opportunity for Positive Surprises
Lee noted that consumers expect inflation in the future to be much higher than it is today, providing plenty of opportunity for positive surprises. With all the cash on the sidelines, Lee concluded that "we should be quite bullish, actually.
