Fundstrat Global Advisors head of research Tom Lee says the S&P 500 still has fuel to move higher from current levels, but warns that investors will need to navigate two specific risks before the market can reach what he believes could be a generational rally in 2027.
In a new CNBC interview, Lee says the index has arrived at what was originally an aspirational target and that the underlying conditions still support further upside.
But Lee warns that he’s seeing two specific risks on the horizon that could trigger a drawdown of 15% to 20% in the coming months.
“I think that 7,300 originally was like an aspirational level, and now that we’re here, I think that there still is fuel for a move higher from here.
But we do have to confront later this year two things, and maybe it won’t affect the markets, but I think it’s the trigger for a drawdown, and one is, of course, the market will test a new Fed, and this incoming Fed chair has some different theories on the sources of inflation and how to read inflation. And so the market, I believe, will put those views to the test. And, of course, the second is that every day that the Strait is closed, we know that there’s an acute shortage developing of petroleum products. So if price reacts later this year, that’s going to test the market.”
Despite his predicted market turbulence, Lee believes that equities will weather the storm and soar to new all-time highs, fueled by AI-driven productivity gains.
“But AI and the scarcity, and the US is the provider of that scarcity, is why I think we can exit 7,700 or higher, and maybe 2027 is one of the biggest rallies we see in our lifetime. So I think it’s still a bullish outlook, but turbulence in the middle.”
As of Wednesday’s close, the S&P 500 is trading at a new all-time high of 7,365.
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