Fundstrat’s Tom Lee says accelerating earnings growth and a weaker U.S. dollar could help push stocks higher through the end of the year, even as investors remain cautious amid compressed valuations.
In a new interview with CNBC, Lee says say Improving fundamentals are not yet fully reflected in stock prices, leaving room for upside in the future despite the potential volatility.
“I think one of the big real stories this year is that earnings growth is accelerating, and that was driven by onshoring and the removal of tariff headwinds. But now that the dollar is weak, I think that adds more upside to the earnings story.”
Lee says current market multiples suggest investors aren’t paying for that improvement yet.
“Investors aren’t necessarily paying for that right now because prices have contracted, but I think it’s really helping to anchor stocks. Between now and the end of the year, I think there could be a lot of reasons for speed bumps. But as we close out the year, the earnings story is anchoring upward toward our target of 7,700.”
From a sector perspective, Lee says Fundstrat continues to favor cyclical exposure.
“From Fundstrat’s perspective, our top sectors this year would be energy and materials. We still like the Mag 7, as well as the financials, industrials and small caps.”
Lee acknowledges the policy-related pressure on banks, but says fundamentals are still strong.
“I think the financials are under pressure because the White House is picking winners and losers. But the fundamentals of the banks are so good.”
Lee adds that emerging technologies could trigger a longer-term revaluation of the sector.
“I think tokenization and blockchain are really big productivity drivers, and AI is a huge tailwind. I would use all the weaknesses to buy them.”
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