There’s ‘excessive pessimism’ in the markets, says Fundstrat’s Tom Lee

BUT WE HAD SOME SOME POSITIVE ACTION ON FRIDAY. AND THE S&P BACK ABOVE 7700 ON FRIDAY. JOINING US NOW TOM LEE HEAD OF RESEARCH AT FUNDSTRAT. CHIEF INVESTMENT OFFICER OF FUNDSTRAT CAPITAL AS WELL AS A CNBC CONTRIBUTOR. THE LATEST DATA POINT THAT YOU'RE INTERESTED IN, TOM, WAS THAT THAT UNEMPLOYMENT OR THAT EMPLOYMENT REPORT, WHICH IN YOUR VIEW, MEANS THAT THE PREVIOUS ONE IN AUGUST MIGHT HAVE BEEN A LITTLE BIT OF AN OUTLIER. AND FROM THAT, YOU GLEAN THAT ANY INFLATIONARY PRESSURES FROM THE LABOR MARKET ARE UNLIKELY. SO YOU'RE BACK TO THINKING IF OIL GETS UNDER CONTROL, INFLATION MIGHT NOT CONTINUE TO BE A PROBLEM. >> YES. >> GOOD MORNING JOE. >> THAT'S RIGHT. I THINK GOING INTO LAST WEEK'S JOBS REPORT, THE MARKET HAD BEEN WORKING WITH A MAXIMUM HAWKISH FED ONE THAT WAS GOING TO RAISE THREE TIMES, INCLUDING A 75% CHANCE OF AN OCTOBER HIKE. THIS JOBS REPORT HAS BEEN SOFTER. WE GET AN INFLATION REPORT IN TWO WEEKS FOR SEPTEMBER. IT DOES IN OUR VIEW, WE BELIEVE THERE'S THESE ONE OFFS ROLLING OFF. AND SO I THINK THERE'S OVER THE NEXT SIX MONTHS SOFTER READINGS ON INFLATION. AND THAT ALLOWS NOT ONLY THE FED TO KIND OF WALK BACK FROM ITS HAWKISHNESS, BUT I THINK IT'S GOING TO ALLOW BOND YIELDS TO ACTUALLY SORT OF NORMALIZE, BECAUSE THE INFLATION SORT OF UNCERTAINTY STARTS TO EASE. AND I THINK THERE'S A LOT OF CLUES BECAUSE I THINK TECH STOCKS MAKING NEW HIGHS AND CRYPTO DOING SO WELL, THESE CAN'T DO WELL IN THE FACE OF TIGHTENING MONETARY CONDITIONS. SO I THINK THAT THEY'RE ANTICIPATING EASIER FINANCIAL CONDITIONS AHEAD. >> SO YOU'RE READING THE TEA LEAVES IN DIFFERENT MARKETS FOR WHAT'S GOING ON. THAT WOULD BE SIGNIFICANT. TOM. SO YOU THINK WHEN YOU SAID YIELDS WILL NORMALIZE, WHAT DO YOU THINK A NORMAL YIELD RIGHT NOW FOR THE TEN YEAR WOULD BE IF THERE WEREN'T THESE WHAT YOU THINK I THINK ARE HEAD FAKES IN DIFFERENT MARKETS. >> I THINK ONE NUMBER WE CAN WORK WITH IS BEFORE JACKSON HOLE, THE TENURE WAS AT 4.75%, AND I THINK ANYTHING UNDER 5% WOULD BE INTERPRETED BY MARKETS AS REALLY A POSITIVE FOR RISK ON. AND I MEAN, I THINK THERE'S A GOOD CHANCE IN THE NEXT SIX MONTHS WE'RE GOING TO SEE YIELDS BELOW 5%. >> YOU ALSO ARE LOOKING BEFORE THE END OF THE YEAR FOR MAYBE AS MUCH AS 9% HIGHER ON THE S&P. SO YOU GOT MAYBE 8200 MAYBE 8400. AND YOU CALL THE CURRENT MARKET, WHICH I THINK ONCE AGAIN, YOU'RE YOU'RE YOU GO. SO AGAINST CONVENTIONAL THINKING ALL THE TIME. YOU THINK THIS MARKET IS A COILED SPRING READY TO GO MUCH HIGHER, ALMOST LIKE IT'S BEEN HELD BACK, EVEN THOUGH MOST PEOPLE WOULD THINK THAT IT'S SORT OUT OVER ITS SKIS BEING BOOSTED ONLY BY AI. >> YEAH, I THINK WE ARE AN UNPRECEDENTED TIME BECAUSE EARNINGS GROWTH IS ACCELERATING, SOMETHING THAT MANY PEOPLE WOULD FIND HARD TO BELIEVE IN THEIR LIFETIME. BUT EVEN Q3 EARNINGS ARE PROBABLY GOING TO COME IN AT ALMOST 30% GROWTH. AND PE, SORRY, EPS REVISIONS FROM THE START OF THIS YEAR TO NOW FOR 2027, EARNINGS ARE UP MORE THAN 20% AND THE S&P IS NOT EVEN UP 20%. SO THE THE MULTIPLE ACTUALLY HAS COME DOWN. IF SOMEONE IS THINKING THE MARKET WAS EXPENSIVE AT THE START OF THE YEAR, IT'S ACTUALLY GOTTEN CHEAPER. AND THEN I THINK THAT IRONICALLY, OIL PRICES BEING HIGH BECAUSE THE US IS AN EXPORTER IS ACTUALLY STRENGTHENING THE US ECONOMY. SO I KNOW IT'S A VERY COMPLEX SITUATION. BUT TO ME, I THINK THERE'S EXCESSIVE PESSIMISM BECAUSE NOT ONLY IS THE EARNINGS VISIBILITY GOOD, BUT WE'RE ALSO GETTING LEADERSHIP FROM THE STOCKS THAT ANTICIPATE WEAKER INFLATION, WHICH IS TECH. AND YOU KNOW, CRYPTO. >> YOU ALSO, I THINK ALREADY AT ANY TIME FOR A DRAWDOWN THAT COULD STILL COME. AND YOU'VE BEEN TALKING ABOUT THAT FOR A WHILE. IN FACT, THERE'S AT ONE POINT YOU THOUGHT EVEN A SIX HANDLE ON THE S&P WAS POSSIBLE BEFORE THE END OF THE YEAR, AND THEN A MOVE BACK TO MAYBE THE HIGH SEVENS OR EIGHTS ON THE S&P. SO THAT WOULD BE A MIDTERM SORT OF A FREAK OUT OR WHAT WOULD CAUSE THAT WE DO HAVE THE MIDTERMS GETTING CLOSER AND CLOSER. I THINK IT'S WHAT IS IT. IT WAS 35 DAYS. DID WE SAID ANOTHER WEEK PASSED BY. IS IT IS IT 28? THAT'S A ZOMBIE MOVIE. 20. ANOTHER 28 DAYS. IS IT ONLY ABOUT 28 DAYS AWAY? >> I MEAN, I THINK THERE IS AN EXPIRATION DATE FOR A CORRECTION, PARTLY BECAUSE I THINK THE MIDTERMS IS A CLEARING EVENT. YOU KNOW, THAT'S PROBABLY GOING TO BE A VERY BIG RISK ON SIGNAL FOR MARKETS REGARDLESS OF OUTCOME. AND SINCE JUNE 30TH I THINK THE MARKETS HAVE BEEN TOUGH. SO PART OF ME THINKS WE'VE HAD A ROLLING CORRECTION. AND THAT'S YOU KNOW, WE'VE HAD A LOT OF DIFFERENT GROUPS IN A DRAWDOWN. BUT AS FAR AS A BIGGER DRAWDOWN IN MARKETS, I'M STILL KIND OF HOLDING A VIEW THAT FROM MID-OCTOBER TO MIDTERMS IS WHERE SPEED, SPEED, BUMP COULD HAPPEN. I'M KIND OF RELUCTANT TO SORT OF BE THAT DECLARATIVE JUST BECAUSE SENTIMENT'S BEEN NEGATIVE. AND I THINK WHEN PEOPLE ARE BEARISH, IT'S HARD FOR MARKETS TO BE OVER THEIR SKIS BECAUSE WE KNOW PEOPLE ARE ACTUALLY SPEAKING WITH THEIR SENTIMENT AND STAYING CAUTIOUS. >> THAT'S THE ONE THING THAT ALWAYS THAT NEVER CHANGES, DOES IT? WHEN THINGS ARE STARING YOU IN THE FACE THAT ARE, THAT ARE NEGATIVE OR SCARY, THAT'S, THAT'S WHAT MOST STRATEGISTS WILL USE TO PREDICT WHAT THE MARKET'S GOING TO DO NEAR TERM. THEY NEVER LEARN. THEY NEVER REALLY LEARN THAT THERE REALLY IS A DISCOUNTING MECHANISM FOR THE MARKET. SO YOU SAID REGARDLESS OF OUTCOME. SO IF THE IF THE DEMOCRATS WERE TO TAKE THE HOUSE AND THE SENATE, YOU DON'T THINK THAT THAT WOULD CAUSE ANY CONSTERNATION IN THE STOCK MARKET? >> I THINK ONE MARKET'S LIKE GRIDLOCK. SO HAVING CONGRESS CONTROLLED BY THE DEMOCRATS WOULD BE VIEWED AS GRIDLOCK. THE AI STOCKS AND CRYPTO STALLED BECAUSE OF MIDTERMS WITH THE IDEA THAT DEMOCRATS DON'T SUPPORT DATA CENTERS AND THEY DON'T SUPPORT CLARITY ACT. BUT OUR COUNTRY AND TAKE IS THAT AFTER MIDTERMS, THE DEMOCRATS ARE GOING TO START SUPPORTING DATA CENTERS AND CLARITY ACT BECAUSE, ONE, DATA CENTERS ARE GENERALLY PROVIDING A LOT OF ECONOMIC BENEFITS TO THE COMMUNITY AND CLARITY ACT HAD MANY DEMOCRATIC SUPPORTERS. SO