Fundstrat's Lee Sees 2026 Earnings Upside, Bullish on US Stocks

Fundstrat’s head of research, Tom Lee, has expressed a bullish outlook on the US stock market, asserting that the current environment is more favorable than it was prior to the trade war initiated by Trump. Lee's optimism is rooted in several key factors that he believes have improved the market's prospects.

Lee points out that the visibility of tariffs is much better today than it was three months ago, and when looking ahead to 2026, there are several positive factors to consider. These include deregulation, tax cuts, and a Federal Reserve that is currently on hold but is expected to implement more cuts in 2026. Lee believes that these factors, combined with the resilience of companies during the recent economic downturn, suggest that the price-to-earnings ratio is likely to be higher in six months than it is now. Additionally, he expects that 2026 earnings will have upside potential, which could drive stock prices higher.

Lee also notes that investor sentiment is shifting to neutral or positive, which could provide further support for stocks during the second half of the year. He observes that institutional players are currently underexposed to the stock market, which could lead to shallow pullbacks as investors gradually increase their exposure. Lee believes that as investors become more optimistic or neutral, this could provide additional upside for stocks.

Lee's analysis highlights the resilience of companies during the recent economic downturn, noting that businesses have survived a "black swan" event and produced earnings that beat expectations. He views this as the fifth stress test for businesses, and believes that it demonstrates their ability to thrive even in challenging economic conditions. Lee's overall assessment is that the US stock market is in a much better position now compared to the period before the trade war, and that this trend is likely to continue in the coming months and years.