The S&P 500 has closed 2.7% below its record high after a four-day losing streak, dragged down by rising Treasury yields and resurgent oil prices. Fundstrat's Tom Lee argues four factors — from Friday's CPI print to a bearish investor mood — could instead trigger a face-ripper rally.
Four days of losses meet a bullish call
The S&P 500 registered a four-day losing streak and sat 2.7% below the record high it hit last month. A global bond market selloff has pushed U.S. benchmark borrowing costs toward 5%, and resurgent oil prices are stoking inflation fears ahead of a Federal Reserve rate decision next week.
Yet Tom Lee, head of research at Fundstrat, believes those same pressures set up a sharp rebound. In commentary published late Thursday, Lee laid out four reasons the market may be about to embark on a face-ripper rally.
The CPI print is the first trigger
Lee thinks Friday's consumer price index report for August could surprise to the downside, which would strengthen the case for the Fed to hold rates steady at its September 16 meeting. Ahead of the report, Fed fund futures were pricing in a 67% chance of a 25-basis-point hike to a range of 3.75% to 4%. A softer inflation print, Lee says, would be a positive surprise given how many hikes futures markets are already pricing in.
Even if Fed Chair Kevin Warsh and colleagues do raise rates on September 16, Lee doesn't expect much further tightening for the rest of the year. He argues that hawkish rhetoric from some Fed officials doesn't match the likely policy path.
Bearish sentiment and an unbroken consumer
Investor sentiment has stayed bearish through 2026, unlike the rallies of 2024 and 2025, when American Association of Individual Investors surveys showed respondents turning net bullish. According to Fundstrat's Tom Lee: "we are not near a near-term top, yet."
Lee's final point is that the U.S. consumer isn't yet at a breaking point from higher oil prices, even after four straight down days driven by crude and Treasury yields.
A prediction with a mixed track record
MarketWatch reported in March 2025 that Lee thought a similar market surge had begun, but the timing was wrong: within about ten days, the S&P 500 had shed nearly 14% as stocks fell following the "Liberation Day" tariff announcement in early April. Still, the market ended 2025 significantly higher than when he made that call.
Source: MarketWatch
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