Bull markets don't peak when investors are this bearish, says Fundstrat's Tom Lee
Stocks may surge over coming days.
The S&P 500 just registered a four-day losing streak. By Thursday's close it sat 2.7% shy of the record high hit last month, hobbled by a global bond market selloff that's pushed U.S. benchmark borrowing costs to the brink of 5%.
Resurgent oil prices are adding to fears of inflation, and so with a Federal Reserve interest-rate decision next week, Friday's release of consumer prices index data for August is keenly anticipated.
But amid the tension, Tom Lee thinks the CPI update will be one of four factors that may trigger a "face-ripper rally" for stocks.
In commentary published late Thursday, Lee, the usually bullish head of research at Fundstrat, addresses the inflation issue head on. We're going to know pretty quickly if his prediction ages well, for Lee believes the CPI report at 8:30 a.m. Eastern "could surprise to the downside", solidifying the case for the Fed to stand pat on Wednesday.
Ahead of the CPI news, Fed fund futures were pricing in a 67% chance the U.S. central bank will raise rates by 25 basis points to a range of 3.75% to 4%. So a softer-than-expected inflation print may allow the Fed to pause, "a positive surprise, as Fed futures show multiple hikes getting priced in," says Lee.
In any event, even if Fed Chair Kevin Warsh and colleagues do decide to raise rates on September 16, Lee thinks there's little chance of such further monetary tightening for the rest of the year. Indeed, Lee contends that many in the market are confounded by what seems to be a hawkish turn in tone from some Fed officials, and he implies that such rhetoric doesn't really mesh with likely policy trajectory.
"Thus, this is a positive set-up going in [to] the Sept FOMC rate decision," he says.
A third reason for the imminent equity surge is that investor sentiment "has become solidly bearish," according to Lee. Unlike the rallies of 2024 and 2025, where surveys by the American Association of Individual Investors showed respondents turning net bullish, investors have remained staunchly bearish in 2026, he notes.
Investors are never bearish at the top of a bull market, Lee contends. "Thus, we argue we are not near a near-term top, yet," he says.
Lee's final reason stocks may bounce higher from here is that, as noted above, the market has been down four days in a row, hit by high oil prices and rising Treasury yields. But he argues: "While this remains problematic, the U.S. consumer is not at the breaking point from these higher oil prices."
Lee accepts that his bullishness right now is contrarian, particularly as many investors remain cautious about the usually weak September market. "But we believe it is this exact cautiousness, particularly the fact that many cite seasonals, as the reason to think a lot of bad news is priced in," he says.
And he adds: "As many sage investors have said, 'markets bottom on bad news' - so, Friday will be the test. But our take is that Friday will see the start of a face-ripper rally."
Lee is fond of the phrase. MarketWatch wrote in March 2025 that he thought such a market surge had begun. But his timing was wrong. Within about 10 days the S&P 500 had shed nearly 14% as stocks swooned following the "Liberation Day" tariff announcement at the start of April. Still, by the end of 2025 the market was significantly higher from when Lee made his call.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is little changed, as oil futures (CL.1) slide and gold futures (GC00) trade around $4,392 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 7591.7 -2.01% -2.66% 10.90% 15.24% Nasdaq Composite 26,081.72 -1.89% -2.69% 12.22% 18.32% 10-year Treasury 4.945 15.60 24.80 77.30 87.50 Gold 4385.7 -2.04% -1.04% 1.23% 19.15% Oil 100.06 9.69% 21.43% 74.29% 59.84% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
The U.S. consumer price index for August will be published at 8:30 a.m. Eastern. Economists expect the headline annual rate to be up 3.4%, unchanged from the previous month.
The U.S. average retail diesel price rose above $6 per gallon, the highest on record, according to AAA.
Anthropic says it blocked possible attempts to use artificial intelligence to develop bioweapons.
Oracle shares (ORCL) are jumping after the cloud and software giant tweaked its forecasts higher and sent an upbeat signal about future business.
Kroger $(KR)$ releases earnings before the market opens.
Other U.S. economic data due Friday include the preliminary University of Michigan Consumer Survey for September, released at 10:00 a.m. Eastern.
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The chart
Amid the rising angst over the sovereign debt selloff, global investors are buying a more-than-usual amount of bond funds. Goldman Sachs portfolio strategists led by Christian Mueller-Glissmann present the chart showing flows into global bond funds are well above the median level in September. "U.S. fixed income fund flows have been strong, especially in short-term government bond funds," they say.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
Ticker Security name GME GameStop NVDA Nvidia ORCL Oracle TSLA Tesla SPCX SpaceX AAPL Apple MU Micron Technology TSM Taiwan Semiconductor Manufacturing AMD Advanced Micro Devices META Meta Platforms
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