Tom Lee, who leads research efforts at Fundstrat Global Advisors and serves as Chief Investment Officer at Fundstrat Capital, has articulated a detailed outlook for the S&P 500 index targeting the year 2026. During his recent discussion on CNBC’s "Squawk Box," Lee reiterated his forecast that the S&P 500 will ascend considerably, aiming for a level of 7,700 by the close of 2026. However, he cautioned that this journey will likely involve a notable correction of 15% to 20% midway through the year, reflecting a market landscape of fluctuation and adjustment.
Lee compared the projected conditions in 2026 to those experienced in the previous year, describing the market climate as oscillating between "joy, depression, and rally." This characterization underscores the presence of significant volatility driven largely by the Federal Reserve's monetary policies, particularly its interest rate maneuvers. Despite this volatility, Lee expressed optimism anchored by certain supportive elements anticipated in the economic environment.
One such element is the cyclical anniversary effect of tariffs, which may play a role in shaping market dynamics. Additionally, the prospect of the Federal Reserve initiating rate reductions is viewed as a potential catalyst for market uplift. Lee also pointed to a possible resurgence in the Institute for Supply Management (ISM) index, which could signal renewed strength in the manufacturing and services sectors, further supporting equity markets.
Significantly, Lee stressed the importance of sectors that have underperformed recently, highlighting energy, financials, and notably small-cap stocks as key areas poised for growth. He reported that small-cap stocks achieved record highs in 2025 and contends that an environment of declining interest rates could provide continued momentum for these equities.
In Lee's perspective, monetary easing combined with improving earnings growth creates a conducive backdrop for small caps. He further emphasized that mergers and acquisitions activity could serve as an additional positive factor, collectively serving as tailwinds that amplify the advantage for these smaller companies.
This outlook resonates with broader market perspectives. Louis Navellier, an experienced investor and CIO of Navellier & Associates, has also recommended that investors emphasize stocks demonstrating strong earnings growth amid expectations of a major market shift in early 2026. Such developments could enhance the upward trajectory of the S&P 500 in line with Lee's projections.
Supporting these views, analyses from Bank of America suggest that small-cap stocks are likely to outperform their mid- and large-cap counterparts during 2026. The bank provides five principal reasons for this expected outperformance: accelerating earnings momentum, a capital expenditure cycle that contributes to revenue growth, easing financing pressure due to Federal Reserve rate cuts, improved profit margins spurred by tariff reductions and deregulation, and attractive valuations backed by investor positioning.
These factors collectively contribute to the strong case for small-cap stocks leading gains in the upcoming year, aligning closely with Lee's optimism regarding their potential market impact.
Looking at recent market performance, the Invesco QQQ Trust, Series 1 (NASDAQ: QQQ) and the Vanguard S&P 500 ETF (NYSE: VOO) have both recorded solid returns over the past year, rising by 16.89% and 14.74%, respectively, according to data sourced from Benzinga Pro. These performance figures underline the broader strength traced among key market indices.
Tom Lee's comprehensive forecast paints a nuanced picture for 2026: a year characterized by significant gains tempered by periods of correction and volatility, with small-cap stocks positioned as primary beneficiaries of the evolving economic and monetary landscape.
Lee compared the projected conditions in 2026 to those experienced in the previous year, describing the market climate as oscillating between "joy, depression, and rally." This characterization underscores the presence of significant volatility driven largely by the Federal Reserve's monetary policies, particularly its interest rate maneuvers. Despite this volatility, Lee expressed optimism anchored by certain supportive elements anticipated in the economic environment.
One such element is the cyclical anniversary effect of tariffs, which may play a role in shaping market dynamics. Additionally, the prospect of the Federal Reserve initiating rate reductions is viewed as a potential catalyst for market uplift. Lee also pointed to a possible resurgence in the Institute for Supply Management (ISM) index, which could signal renewed strength in the manufacturing and services sectors, further supporting equity markets.
Significantly, Lee stressed the importance of sectors that have underperformed recently, highlighting energy, financials, and notably small-cap stocks as key areas poised for growth. He reported that small-cap stocks achieved record highs in 2025 and contends that an environment of declining interest rates could provide continued momentum for these equities.
In Lee's perspective, monetary easing combined with improving earnings growth creates a conducive backdrop for small caps. He further emphasized that mergers and acquisitions activity could serve as an additional positive factor, collectively serving as tailwinds that amplify the advantage for these smaller companies.
This outlook resonates with broader market perspectives. Louis Navellier, an experienced investor and CIO of Navellier & Associates, has also recommended that investors emphasize stocks demonstrating strong earnings growth amid expectations of a major market shift in early 2026. Such developments could enhance the upward trajectory of the S&P 500 in line with Lee's projections.
Supporting these views, analyses from Bank of America suggest that small-cap stocks are likely to outperform their mid- and large-cap counterparts during 2026. The bank provides five principal reasons for this expected outperformance: accelerating earnings momentum, a capital expenditure cycle that contributes to revenue growth, easing financing pressure due to Federal Reserve rate cuts, improved profit margins spurred by tariff reductions and deregulation, and attractive valuations backed by investor positioning.
These factors collectively contribute to the strong case for small-cap stocks leading gains in the upcoming year, aligning closely with Lee's optimism regarding their potential market impact.
Looking at recent market performance, the Invesco QQQ Trust, Series 1 (NASDAQ: QQQ) and the Vanguard S&P 500 ETF (NYSE: VOO) have both recorded solid returns over the past year, rising by 16.89% and 14.74%, respectively, according to data sourced from Benzinga Pro. These performance figures underline the broader strength traced among key market indices.
Tom Lee's comprehensive forecast paints a nuanced picture for 2026: a year characterized by significant gains tempered by periods of correction and volatility, with small-cap stocks positioned as primary beneficiaries of the evolving economic and monetary landscape.