While the stock market has been scaling new records, the CIO of FundStrat Capital, Tom Lee, has said that his institutional clients are “hating” the current rally in the stock market. Additionally, he spoke about three levers that could propel the market higher in the future.
What Happened: Lee, in conversation with CNBC, highlighted the $7 trillion in cash that is locked up in the money market funds and said, “I can tell you, our clients, institutional clients, remain very skeptical. This is the most hated V-shaped rally.”
While the markets rally, the liquidity parked in the money markets has made the investors wary of this up move in the stocks.
“There is a lot of high-net-worth money, I know there is a lot of our institutional long-short macro, that is shorting this rally, the long-only managers are defensively positioned, they don’t believe in cyclical long, but look if rates come down and Fed starts easing it’s going to force people into a cyclical tilt,” said Lee.
However, the market bull was still hopeful of a further leg up in the market. He said, “I think there are three levers that are going to get pulled.
According to him, the first lever was the Federal Reserve still being on hold, and once they cut rates, the markets were poised for further upside.
Secondly, he said that the market was not overpriced and the price-to-earnings ratios were not “stretched.” He said that the “PE should be expanding.”
Lastly, he highlighted the reshaping of the “economic flows around tariffs,” and how it could lead to an earnings surprise.
Why It Matters: The S&P 500 and Nasdaq indices clinched record highs for the third time this week on a shorter trading day on Thursday.
This “V-Shaped” recovery comes from the April lows when the markets plunged nearly 20% from their 52-week highs.
The senior global strategist at Wells Fargo, Scott Wren, said that "Our feel is that stocks are ahead of themselves, and we are looking to trim positions in overvalued markets and sectors."
Wren explained that most market strategists don’t want to see the kind of market volatility the S&P 500 Index has experienced over the past four months.
"But just when a bit of panic set into the minds of some investors, stocks turned seemingly on a dime and in less than three months gained back all that was lost and then some, setting a new record high to close out last week’s trading."
He also reiterated that Wells Fargo believes the Wall Street consensus is overly optimistic on the tariff outlook and thus the growth rate in calendar-year 2025.
Price Action: On the truncated trading day of July 3rd, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, scaled fresh records and ended higher. The SPY was up 0.79% at $625.34, while the QQQ advanced 0.98% to $556.22, according to Benzinga Pro data.
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