This Wall Street Veteran Says the Market Has Bottomed: Hereβs What He Thinks Comes Next
This Wall Street Veteran Says the Market Has Bottomed: Hereβs What He Thinks Comes Next
Joey Frenette Tue, July 14, 2026 at 9:01 PM UTC
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While the Dow slides into correction territory and the "fear gauge" flashes red, the loudest voice on Wall Street is also the calmest. Fundstrat's Tom Lee, the strategist who defied the recession crowd to correctly call the 2023 bull run, is not flinching. He has spent 2026 raising his targets higher and his conviction louder.
Lee set a 7,700 year-end target for the S&P 500 back in December 2025, then added a definitive bottom call in early April. Speaking on CNBC on April 8, 2026, he pointed to a telling signal: even as the U.S.-Iran conflict intensified and oil climbed sharply, equities refused to break down. The Iran ceasefire announcement the following day confirmed his read. From the late-March lows, the S&P clawed back roughly 8.6%, validating a thesis that many doubted at the time.
Since then, Lee has kept pushing the envelope. In a mid-year update on June 25, 2026, he raised his year-end target to 8,000 from 7,700, citing stronger earnings expectations for 2027. By the time he appeared on CNBC's Squawk Box on July 6, the S&P 500 was already trading near 7,537 (up roughly 9% year-to-date), and Lee was floating upside scenarios as high as 8,400 to 8,800 if earnings continue to outpace expectations. His argument: the market is actually cheaper now than it was in January, because earnings have grown faster than prices. Lee now sees 2026 full-year S&P 500 earnings landing around 400, at a multiple in the 20x to 22x range.
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The "Catch-Up" Trade
Lee is not simply chasing the AI-fueled Magnificent Seven. He is eyeing what he calls a "Great Rotation" into the unloved corners of the market: Energy and Materials. The logic is straightforward. Big Tech did the heavy lifting for years, leaving those two sectors lagging the broader index. Lee has highlighted that roughly 70% of the S&P 500 has recently worked through a rolling bear market, with energy and financials absorbing their hits first, followed by software and Magnificent Seven names. That sector-by-sector repricing, he argues, means any future pullback is unlikely to be as severe, because the damage has already been done in pockets of the market. In its mid-year update, Fundstrat reiterated its preference for technology, financials, industrials, small-cap stocks, and energy/basic materials as the five core sectors for the second half of 2026.
Lee is not without caution, though. On July 6, he warned that a drawdown of 10% to 20% could materialize between August and October. He flagged four specific risks he sees capable of triggering that kind of volatility: a market test of the new Federal Reserve's framework, a gradual unlock of SpaceX shares, a cumulative shortage of petroleum products, and elevated margin debt. The Fed backdrop adds texture to that concern: the Federal Funds target upper bound stands at 3.75%, down from 4.5% in September 2025, but core PCE remains in the 90th percentile of the past 12 months, leaving policymakers with limited room to maneuver. GDP growth itself has been uneven, swinging from 4.4% in Q3 2025 to 0.5% in Q4, then recovering to 2.1% in Q1 2026. Lee is bullish on the full-year outcome, but he is not dismissing the turbulence that may lie ahead before any final rally arrives.
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For broad, low-cost exposure to those two sectors, the State Street Energy Select Sector SPDR ETF (NYSEARCA:XLE) and the State Street Materials Select Sector SPDR ETF (NYSEARCA:XLB) are the natural vehicles. Both carry expense ratios of 0.08%, trade with deep liquidity, and track the energy and materials components of the S&P 500 directly.
The Energy Select Sector SPDR ETF has pulled back significantly from its 52-week high of around $63, which makes the current price level more compelling relative to earlier in 2026. The fund carries a yield of roughly 2.6% and holds the large-cap energy names that dominate the sector. With geopolitical uncertainty still keeping oil in focus and the EIA warning that Strait of Hormuz disruptions could push Brent crude toward $106 per barrel, the energy sector's case as a portfolio diversifier is not going away.
The Materials Select Sector SPDR ETF offers a similar setup for those drawn to mean-reversion opportunities. The basic materials sector spent years underperforming, and it is only beginning to attract fresh attention as the rotation thesis gains traction. The fund currently yields approximately 1.6% and carries a trailing price-to-earnings multiple in the upper 20s, a valuation that reflects the demand building behind industrial metals, construction materials, and chemicals tied to the energy transition and AI infrastructure buildout. Lee has also flagged that wartime dynamics tend to accelerate demand for precisely the materials this fund tracks, adding a structural layer to the thesis beyond pure cyclical recovery.
Editor's note: This article has been to reflect Tom Lee's mid-year target increase from 7,700 to 8,000 for the S&P 500, his July 6, 2026, upside scenarios of 8,400 to 8,800, his warning of a potential 10% to 20% drawdown between August and October, and current XLE and XLB yield figures of approximately 2.6% and 1.6%, respectively.
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Contact editorial@247wallst.com for any questions or corrections.
Source: βAOL Moneyβ
