Fundstrat Global Advisors head of research Tom Lee believes U.S. stocks are on the verge of a powerful rebound, despite recent market weakness driven by rising Treasury yields and higher oil prices.
The bullish stock market rally prediction comes as the S&P 500 has recorded four consecutive losing sessions and trades about 2.7% below its recent all-time high.
Investors have grown increasingly cautious as Treasury yields approach 5% and elevated energy prices fuel concerns that inflation could remain stubbornly high ahead of the Federal Reserve’s next policy decision.
According to Lee, the recent pullback has created conditions for what he describes as a potential “face-ripper rally,” a sharp upward move that could catch bearish investors and short sellers off guard.
A key pillar of Lee’s face-ripper rally forecast is the latest inflation data. U.S. consumer prices rose 0.4% in August from the previous month, while annual inflation held at 3.4%, keeping pressure on Federal Reserve policymakers ahead of their September meeting.
Markets are widely expecting the Fed to raise interest rates by 25 basis points, with Treasury yields remaining near multi-year highs as investors prepare for the possibility of higher borrowing costs for longer.
In his view, even if policymakers adjust interest rates at the September meeting, the broader policy direction remains supportive of risk assets through the remainder of the year. Lee suggested that any particularly hawkish messaging would be inconsistent with the overall trajectory of monetary policy.
Market reaction to Fed decision
The strategist believes markets are positioned for a positive reaction because expectations have already become heavily skewed toward caution.
Lee pointed to investor sentiment as another reason behind his optimistic S&P 500 outlook. He noted that market participants have remained largely bearish throughout 2026, even as stocks have advanced for much of the year.
Historically, major market peaks tend to form when investor optimism becomes excessive. The persistence of widespread caution suggests to Lee that equities may still have room to move higher before reaching a meaningful top.
Recent market weakness linked to rising oil prices and bond yields has also left many investors defensive. Concerns over September’s historically weak performance have further weighed on sentiment.
Lee argued that much of the negative news may already be reflected in stock prices. As a result, he sees the period following the latest inflation report as a potential turning point that could spark a strong recovery in U.S. equities.
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