Market strategist Tom Lee has identified the market conditions following April's selloff as the beginning of a new bull market. He highlighted the sharp decline and increased volatility in April as a cleansing event that reset investor sentiment. Lee described the market movements as a 'miniature bear market' that ultimately catalyzed a fresh bullish phase.
Lee explained that the sharp VIX surge to 60 and significant liquidation during April represent the type of capitulation often seen at the start of new bull runs.
Looking forward, Lee anticipates that any downturns will be relatively shallow, supported by potential deregulation and tax reforms that could bolster market performance in the latter half of 2025. He also expects the Federal Reserve to adopt a more easing-oriented monetary policy stance beginning in 2026, providing an additional positive impetus for equities.
Regarding market segments, Lee advocates a barbell investment approach. In the near term, he favors the 'Magnificent Seven' technology-driven stocks during their ongoing recovery. However, for the second half of the year, he prefers small-cap stocks, especially as tariff concerns ease and investors resume moving capital beyond large-cap tech.
The Russell 2000 small-cap index has faced significant pressure, declining over 7% this year, contrasting with the relatively stable S&P 500. Lee sees strong upside potential for small caps contingent on progress toward tariff resolutions, which would restore investor confidence and increase flows into riskier, growth-oriented segments.
Summing up, Lee counters prevailing market pessimism and calls this period a mid-cycle phase heralding a new bull market, emphasizing shallow dips and broadening opportunities across market capitalizations.
