The S & P 500 is heading for a new high, and Bitcoin is showing the way. This is what Tom Lee, head of research at Fundstrat Global Advisors, outlined during the market segment this week, where he broke down why he thinks the rebound in crypto directly points to higher growth for stocks.
This happened as investors prepared for the Federal Reserve's decision, while stocks pulled back slightly on Monday. Tom said the bottom has already been hit. He reminded viewers that he called 5500 for the S & P 500 weeks ago, and the market hit that without resistance.
«Bitcoin is above the level of April 2,» said Tom. «Bitcoin tells us that the S & P should recover to the level of 5800 in the near future. From here, it is still up.» He pointed out how cryptocurrency performance generally leads to risk-on sentiment, and that pattern is still intact.
Tom Lee says tariff fears are fading quickly
Tom said that while tariff concerns may bubble up, the macro picture looks better than it did in early April. He said April 7 was the peak of tariff panic and conditions have improved since then. Tom also pointed to signs from other assets that lead stocks.
Credit markets, high-yield bonds, and the VIX all signal easing tensions. «High yield has recovered almost all the widening that occurred since April 7,» he added.
Tom explained that the term structure of the VIX is now inverted, which tells him that volatility is calming down. He said this lays the groundwork for stock advances.
Looking ahead, he said that 2026 offers potential confidence, especially if there is deregulation and better corporate earnings comparisons. If new tariff rules open the door for more exports, earnings could get another boost.
Tom did not pretend that the rally to new highs would be easy. «The bar for recovering to all-time highs is certainly higher,» he said, but made it clear that the current setup is favorable. «The risk-reward is actually still positive here,» he added. He said the market can still go higher, even with all the noise.
Tom Lee points to crypto and commodities for direction
Tom said companies have proven they can handle shocks. He pointed to the cycle, inflation, and even aggressive Fed hikes. «Companies have weathered the impact on the economy. They have survived the inflation spike. They have endured the Fed's hikes at the fastest rates,» he said. He expects earnings to beat forecasts again, especially if conditions stabilize.
Tom listed names that have dragged the market - Tesla, The Magnificent Seven, and Bitcoin - but said that now they are all recovering. «They have started to recover,» he said, before emphasizing again that Bitcoin is already above the April 2 price, and that is the biggest hint stocks should follow.
Tom Fundstrat also criticized the Fed for sitting on its hands while the European Central Bank is already cutting rates. He pointed out that the ECB's inflation measure leaves shelter costs. If the Fed did the same, Tom said: «Core inflation here will be lower than in Europe.» However, U.S. interest rates are 125 basis points tighter than the ECB, which he said makes no sense.
He said it’s easy to see the argument that the Fed will start cutting now, even before the full effects of tariffs are felt. But he also asked if Trump could pressure Jerome Powell in a tight spot. If inflation is falling, but growth is slowing, Powell could be blamed. «It makes him potentially a fall guy,» he said.