Fundstrat’s Tom Lee is calling for a stronger U.S. stock market in July after a weak and choppy June. His view is based on a simple idea: even though stocks have already gone up this year, valuations have come down enough to give the market room for another move higher.
The key benchmark he’s focused on is the SPDR S&P 500 ETF Trust (NYSEARCA: SPY), which is up about 9% year to date through early July. That gain might suggest the market is already stretched, but Lee argues the opposite. He says the price investors are willing to pay for earnings (the P/E ratio) has actually dropped since January. In other words, stocks are cheaper than they were at the start of the year relative to profits.
June was not a strong month. SPY fell about 2%, and volatility picked up as investors became more cautious. Lee sees this as a “reset” rather than a breakdown. In his view, weaker sentiment has helped clear the way for a new upward move.
Earnings are the Driver
Lee’s bullish case comes down to earnings. He expects companies in the S&P 500 to report stronger-than-expected profits for the second quarter. If that happens, it could push the market higher even if valuations don’t expand much.
He also made a simple valuation argument. One, if the S&P 500 trades at about 20 times earnings, the index could reach around 8,000. Two, if investors are willing to pay more—around 22 times earnings—the market could rise to 8,400 to 8,800 by year end.
Why the Rally Could Continue in the Short Term
Lee also thinks investor positioning could help push stocks higher in the near term.
He noted that only about 23% of fund managers are beating large-cap growth indexes. That’s unusually low. When managers underperform like this, they often buy stocks they are missing, add exposure during dips and try to catch up with benchmark performance. That kind of behavior can add buying pressure to the market.
There are also signs of continued demand for stocks.
Even during recent weak weeks, money kept flowing into the SPDR S&P 500 ETF Trust (SPY). That suggests investors are still committed to U.S. equities.
What Investors Should Watch Next
The next big test is earnings season. If companies beat expectations, it supports Lee’s idea that profits—not hype—are driving the market. The Federal Reserve is another key factor. Any hint of rate cuts or policy changes could quickly move stocks.
Finally, AI-related spending remains a major driver of bullish forecasts. Many strategists, including those at JPMorgan Chase JPMorgan Chase, believe AI investment could keep boosting corporate profits through the rest of the year.
Tom Lee’s Forecast for the S&P 500
At the end of the day, Lee’s outlook comes down to a familiar market tension: the economy doesn’t need to be perfect for stocks to rise—it just needs to be “good enough” while expectations stay reasonable. Right now, he sees a market that has cooled off just enough to reset sentiment, without breaking the underlying uptrend.
Still, this isn’t a straight-line story. Even in bullish setups, the market rarely moves cleanly. Earnings surprises, Fed messaging, and sudden shifts in investor mood can all change the tone quickly. That’s why the coming months may feel less like a smooth climb and more like a series of pushes and pullbacks.
For investors, the takeaway is less about chasing a precise target and more about watching whether earnings continue to do the heavy lifting. If they do, the higher-end forecasts start to look more realistic. If they don’t, the market has a way of reminding everyone that valuations and expectations still matter.
