Fundstrat’s Tom Lee says accelerating earnings growth and a weaker US dollar could help push equities higher by year-end, even as investors remain cautious amid compressed valuations.
In a new interview with CNBC, Lee says improving fundamentals are not yet fully reflected in stock prices, creating room for upside despite potential volatility along the way.
“I think one of the big real stories this year is earnings growth is accelerating, and that was because of onshoring and the tariff headwinds disappearing. But now, if we have dollar weakness, I think it puts more upside to the earnings story.”
Lee says current market multiples suggest investors are not paying for that improvement yet.
“Investors aren’t necessarily paying for that right now because multiples have been compressing, but I think it really helps anchor stocks. Between now and the end of the year, I think there can be a lot of reasons for speed bumps. But as we exit the year, the earnings story is anchoring upside to our 7,700 target.”
From a sector standpoint, Lee says Fundstrat continues to favor cyclical exposure.
“From Fundstrat’s perspective, our top sector picks this year would be energy and basic materials. We still like the Mag 7, and financials, and industrials, and small caps.”
Lee acknowledges policy-related pressure on banks but says fundamentals remain strong.
“I think the financials are being buffeted because the White House is choosing winners and losers. But the bank fundamentals are so good.”
Lee adds that emerging technologies could drive 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 any of the weakness to buy them.”
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