A Market Pivot Is Brewing, Says Tom Lee — But It’s Not Just Stocks This Time
Veteran market strategist Tom Lee signaled that the US inventory market could also be approaching a pivotal turning level.
He highlighted three sectors, together with crypto, as potential leaders within the subsequent market rally.
Market Rotation and Crypto Set the Stage for Next Rally, Tom Lee Says
Speaking on CNBC’s Closing Bell, Lee outlined a cautiously optimistic situation by which the S&P 500 could climb toward 7,300 as risk-off positioning eases and earnings stay sturdy.
“Stocks have taken some hits,” Lee said, pointing to a latest software program downturn and a rotation out of the MAG 7 mega-cap tech shares into AI-focused “bullet makers,” alongside broader risk-off strikes into gold.
Despite this volatility, he emphasised that underlying fundamentals stay stable, supported by broad double-digit earnings growth across the market.
Lee recognized three trades that would outline the following rally:
- Rotation again into the MAG 7
- Potential backside within the software program sector (IGV), and
- Crypto property.
According to Lee, institutional information present software program possession at multi-decade lows, whereas MAG 7 shares are cheaper relative to AI leaders than at any level up to now decade.
“Crypto drawdowns have already reached about 80% of earlier crypto winter ranges, organising high-probability commerce alternatives,” he mentioned.
The software program sector, significantly semiconductors, stays a key variable. Nvidia’s upcoming earnings report will seemingly set the tone for AI infrastructure trades and will both reinforce or dampen market optimism.
Lee advised that software program may be close to a backside, however cautioned that outcomes from main gamers like Nvidia can be essential to sustaining any rally.
Consumer Strength and Defensive Sectors Could Cushion Market Pivot
Consumer discretionary shares additionally present indicators of resilience, offering help amid tech weak point. Jonathan Krinsky of BTIG highlighted energy in eating places, airways, and homebuilders, noting a number of technical breakouts underway.
With client confidence at contrarian lows, discretionary shares could profit from a broadening restoration, significantly as rates of interest proceed to ease.
Mortgage charges have fallen from practically 8% to six.17%, and the 10-year Treasury yield stays favorable, fueling demand throughout housing and companies sectors.
Lee additionally defined why defensive sectors, together with staples and healthcare, have outperformed just lately.
“This is basically mean-reversion after three years of market beneficial properties,” he mentioned. “Portfolios are de-risking briefly, however the underlying bull market stays intact.”
The strategist articulated that the present market atmosphere requires cautious consideration to positioning, earnings, and sector rotations.
While tech and AI narratives dominate headlines, he believes broader market breadth and missed sectors may lead the following leg increased.
Crypto, having experienced deep drawdowns, could even preempt broader market rallies, providing merchants early alternatives.
As buyers await Nvidia’s report and monitor software program stabilization, Lee’s view suggests the market could also be poised to pivot.
If the MAG 7 resumes its uptrend, software program stabilizes, and discretionary energy continues, the S&P 500 might see a measured climb towards 7,300. This might set the stage for a broader rally throughout fairness and digital asset markets.
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