Tom Lee: There's still upside for stocks and pullbacks will be shallow
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In February, according to Tom Lee, there were numerous uncertainties ahead, and the long-term outlook (e.g., to 2026) was unclear. The transcript implies that improved tariff visibility is a key factor contributing to a reduction in these uncertainties.
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Tom Lee states that companies produced earnings that beat expectations even during a period encompassing a "waterfall decline in equities" and what he terms a "near heart attack of the economy". He refers to this as the fifth stress test for businesses, implying that their success in this period supports his argument.
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Tom Lee attributes the current underinvestment in the stock market to the "waterfall decline" in stocks, which led to a complete reset in positioning and sentiment. Many investors were forced to liquidate, and even as the market rallied, institutions largely refrained from adding risk back into their portfolios.
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Tom Lee describes current investor sentiment as barely turning neutral. He anticipates that as investors shift from a negative to a more neutral or optimistic stance, this will contribute to further upside for stocks.