After weeks of selling, one Wall Street strategist says markets may be closer to a turning point than many think.
In a new CNBC interview, Fundstrat co-founder Tom Lee points to a mix of sector rotation, risk-off positioning and deep drawdowns across software and crypto as signs that much of the damage may already be done.
He says the recent move is a broad shift out of mega-cap tech and into AI infrastructure plays, which he calls the shift from armies to the bullet makers.
“I think stocks took some hits, partly it was a software downturn, and then this rotation out of the Mag 7, armies into the bullet makers for AI, and a general sort of risk off as gold surged.
But the earnings have been delivered solidly. We’ve been getting good economic reports. And I think positioning has gotten risk off enough that we can sort of climb maybe in a labored way towards 7,300.”
Lee says positioning data suggests the bulk of the reset may already be behind the market.
“We’re maybe 90% of the way through that because I’ve seen some of the positioning data, so we know, for instance, prime brokerage Goldman data software ownership is like multi-decade lows, and then we know that the Mag 7 have gotten cheaper than the bullet makers, which has never happened in 10 years. They’re at three P/E points discount.”
He adds that crypto markets have also absorbed most of a typical cycle decline.
“And then, of course, on the crypto side, we’ve already gotten to drawdowns that are basically 80% of what’s been in past crypto winters. So I think those are setting up to be really big trades. Maybe they’ve led the market. So we have a bottom first, and they’ll start to rally even if the market’s peaking.”
Lee also predicts that the upcoming Nvidia earnings will act as a near-term catalyst that could trigger a reversal in the Mag 7, software and crypto downtrends.
“I mean [Nvidia earnings] could set the bottom because if you look at the software index, this is like the eighth week of a pretty severe downturn. So next week, you know, as you know, sometimes nine is a big number turning point. That could mark the bottom for software.”
Nvidia is slated to report its results for the fourth quarter of fiscal 2026 (ended Jan. 25) on Wednesday, Feb. 25, after market close.
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