Tom Lee: Upside case for stocks the rest of this year is strengthening

Added: 2026-05-05

[00:00:00]Uh Tom Lee, let's get let's get back to the markets. Obviously, a lot a lot lot going on outside of the markets, but the market itself does seem to be kind of looking past the war in Iran, looking past any political event. What is the market the most closely looking at right now?

[00:00:18]>> Well, I think the market at the start of this year maybe had three risks it had to get comfortable with. One is um Iran and a war potential escalation. A second was private credit and the third is a new Fed share. And what we've seen, I think, is that we we've come out the other side of this Iran war with the with the economy showing remarkable strength. In fact, earnings estimates have been going up. So, I think we passed that test and I think the underwriting for the private credit uh looks better than expected. I think that's why IGB is rebounding and so I think the up >> what is IGB?

[00:00:59]>> Oh, sorry. The software ETF.

[00:01:01]>> Okay.

[00:01:01]>> Uh because that fell all the way down to 72. It's back to 85. And so private a lot of private credit loans were tied to software. I think that that is looking less of a structural problem. And so to me this means uh I think for stocks for the year the upside case is strengthening. I think S&P above 7700 is very probable.

[00:01:20]>> What other are the kind of planks that feed into or build into that? Well, I think one is uh earnings estimates are higher and now we're uh seeing AI I think deliver productivity and you know earlier on CBC Torston was talking about how there is the positive case for AI which is you know business growth and company formation and uh I think risk premia later this year drops because if we settle the issue in the Middle East you know you're taking out you know hostile oil premium that's been priced in oil for a long time. So I think that allows markets to lift higher.

[00:01:57]>> Oil is still at 95 bucks. I think and I tweeted out this morning that the market was kind of in the settlein mode. I think that oil hasn't moved really in a week or two. We're kind of now in this sort of stasis if you will with regards to that because I think you said on this program a couple weeks ago that that the the war was the most important thing in the short term.

[00:02:18]What are the two possible outcomes for the markets visav Iran?

[00:02:22]best case, worst case.

[00:02:24]>> Yeah. And and these are pretty big. Um >> Yes, they are.

[00:02:27]>> They're they're they're it's on two very far sides. I think one is an extended war and therefore uh it's a mirage that oil prices are low because now we're going to have a draw down a draw down in inventory and loss production. And so I think uh price for all petroleum products jumps dramatically. And then that puts a lot of global growth at risk. Uh the other side is the war is resolved quickly and that's through all the combination of pressures. I think the market is betting on a shorter war at the moment.

[00:02:59]>> So a lot of the times the recent years we've talked about stocks and bonds but the strong performance of commodities has Michael Hart at Bank of America's chief investment strategist saying a better portfolio positioning right now would be what he calls the sleep like a baby portfolio. Uh he says it's a an equal weight allocation across stocks, bonds, cash, and commodities. Uh according to Hartnet, this four-way split is having its best year since 1933 and delivering one of its largest relative wins ever versus the traditional 6040. Now, we all know every strategy can have a good year. It's like a broken clock, right? But is this a a a working clock that people should think about this kind of allocation and sticking with it? Yeah, I mean there's a lot of logic to that because one, we know that gold's been a a really good total return performer and so I think gold should sit in portfolios which probably sits in commodities along with crypto. Um, and then I did hear someone earlier this year point out NASDAQ and oil are actually good counter hedges. So in in some ways a 25 that portfolio does make a lot of sense.

[00:04:02]>> In fact, technology and energy have kind of been these, you know, two sides of a balance. You know, you'll have a decade where energy does really well and then a decade where technology does really well back and forth. And what's interesting right now is that both of them are kind of doing well. And maybe your point is you don't have to pick, just own a little bit of >> AI is pulling both of those together anyways. Right.

[00:04:23]>> Exactly. Exactly. And kind of changing a little bit. You know, we spoke with Roger McNammy last hour. He expressed some concerns about what's happening with these AI models because the OpenAI in particular doesn't have the revenue to justify its capex right now. and we're about to go into tech earnings where all the focus is going to be on capex. Do you have any concerns that there isn't going to be a pot of gold at the end of this capex rainbow?

[00:04:45]>> Uh yeah, I mean it could play out several ways. You know, of course there could be uh some breakthrough where power consumption drops. Um but uh as you know, we we are consuming every piece of compute. So to me it it does seem too early to worry about that as