A Market Pivot Is Brewing, Says Tom Lee — But It’s Not Just Stocks This Time

Senior market strategist Tom Lee said the U.S. stock market may be approaching a critical turning point.

He highlighted three industries, including cryptocurrencies, as potential leaders in the next market rally.

Lee outlined a cautiously optimistic scenario on CNBC’s Closing Bell in which the S&P 500 could climb to 7,300 as safe-haven positions ease and earnings remain strong.

“The stock market has taken a bit of a beating,” Lee said. He pointed to the recent downturn in the software market, MAG 7 large-cap tech stocks turning to artificial intelligence-focused “bullet makers,” and a shift in risk aversion toward gold.

Despite this volatility, he stressed that fundamentals remain solid, supported by widespread double-digit earnings growth across the market.

Lee identified three trades that could define the next rally:

• Rotate back to MAG 7

• A potential bottom for the software industry (IGV), and

• Cryptoassets.

Institutional data shows software ownership is at multi-decade lows, while MAG 7 shares are cheaper relative to AI leaders than at any time in the past decade, Lee said.

“The crypto retracement has reached around 80% of previous crypto winter levels, creating high-probability trading opportunities,” he said.

The software industry, especially the semiconductor industry, remains a key variable. Nvidia’s upcoming earnings report could set the tone for AI infrastructure trading and could either boost or dampen optimism in the market.

Lee said the software industry may be near a bottom, but warned that performance from major players such as Nvidia will be critical to sustaining any rebound.

Consumer discretionary stocks also showed signs of resilience, providing support amid weakness in technology stocks. BTIG’s Jonathan Krinsky highlighted the strength of restaurants, airlines and homebuilders, noting several technological breakthroughs underway.

With consumer confidence at contrarian lows, discretionary stocks could benefit from a broadening economic recovery, especially if interest rates continue to slow.

Mortgage rates fell to 6.17% from nearly 8% and 10-year Treasury yields remained favorable, stimulating demand in the housing and services sectors.

Lee also explained why defensive sectors, including staples and health care, have outperformed recently.

“This is very much a mean reversion after three years of market gains,” he said. “Portfolios are temporarily de-risking, but the underlying bull market remains intact.”

The strategist said the current market environment requires careful attention to positioning, profitability and sector rotation.

While the tech and AI narrative dominates the headlines, he believes broader market breadth and overlooked sectors could lead the next wave of gains.

Cryptocurrencies that have experienced deep declines may even preempt the broader market rally, providing traders with early opportunities.

As investors await Nvidia’s report and monitor software stability, Lee’s views suggest the market may be about to shift.

If MAG 7 resumes its uptrend, software stabilizes, and discretionary strength continues, the S&P 500 could steadily climb toward 7,300. This could set the stage for a broader rally in stocks and digital asset markets.

Read Tom Lee Says A Market Pivot Is Brewing — But This Time It’s Not Just Stocks by Lockridge Okoth at beincrypto.com