Fundstrat's Tom Lee has predicted a 'face ripper' rally into month end, citing four specific market ingredients. According to reports from CNBC, Lee joined Freedom Capital Markets' Jay Woods as major indexes rebounded from last week's selloff. Both analysts agreed that technology stocks are leading the bounce, though they disagreed on how far the rally can extend. The latest market data shows the SPDR S&P 500 ETF (SPY), the SPDR Dow Jones Industrial Average ETF (DIA) and the Nasdaq-100 tracking Invesco QQQ Trust (QQQ) all moved more than 1% higher in midday trade, with the major averages having fallen for four consecutive sessions entering Friday.
Lee has reframed the rising Treasury yield environment, arguing that the market is reading yields the wrong way, framing them as a stock market threat when they may actually be sorting strong companies from weak ones. The 10-year Treasury yield touched 5.04% on September 15, while the 30-year Treasury yield hit its highest level since 2004, its highest level since 2007, days after the Federal Reserve delivered its first rate hike since 2023, lifting its target range to 3.75%-4.00%. As reported by CNBC, Lee pushed back on the idea that such a move is unambiguously bad news, arguing the market is still working out whether it marks a genuine shift or a one-off adjustment. Higher borrowing costs do not squeeze every company the same way, with well-capitalized firms keeping easy access to financing while smaller, weaker rivals struggle to compete, widening the gap between them.
Lee identified four specific factors supporting his rally call: oil prices cooling over the weekend, treasury yields easing in step with oil, a hawkish Fed that could still soften its stance, and oversold conditions across the broader market. As reported by CNBC, Lee argued these conditions add up to a rally with real momentum. He noted that last week marked maximum pain, driven by a hawkish Federal Reserve and elevated energy prices, with oil since cooling and treasury yields following it lower. The market rebound came despite a monthly core inflation reading that was slightly hotter than expected, with Consumer prices rising 0.4% in August from July and 3.4% from a year earlier, matching Dow Jones estimates.
The rally's leadership is concentrated in AI-linked chip and infrastructure companies, with Dell and Hewlett Packard leading the S&P 500 gains. Dell shipped $8.2 billion worth of AI-optimized servers in its second quarter (Q2) and ended the period with an $11.7 billion AI order backlog. Hewlett Packard Enterprise (HPE) has similarly expanded its AI server and networking business, while positioning its GreenLake platform around hybrid-cloud and AI infrastructure. Super Micro Computer (SMCI) also gained Friday, rising about 5%, though the move was smaller than those of Dell and HPE. The gains came during a broader rebound in U.S. equities, with lower crude prices providing relief after oil prices climbed sharply earlier in the week amid escalating Middle East tensions.
Lee's optimism extends to inflation, expecting headline and core readings to fall meaningfully over the next six months as tariff effects fade, the recent AI-driven jump in memory-chip prices cools, and oil holds near $100 a barrel. He also flagged a technical catalyst, the Bureau of Economic Analysis's September 30 methodology revision to the Personal Consumption Expenditures index, which he estimated could shave 20 to 40 basis points off the annual rate. Independent estimates from TD Securities and Wells Fargo put the effect closer to 15-20 basis points, more modest but directionally supportive of his case. As reported by CNBC, Lee acknowledged uncertainty about what happens if yields and inflation stay elevated longer than his six-month window, but said the balance of evidence still favors a real slowdown in price growth.
