It isn’t easy predicting the stock market’s twists and turns. Most get it wrong. Wall Street is littered with forecasts that didn’t pan out, particularly at the end of 2022, when stocks were mired in a brutal bear market.
Conventional wisdom at the time was that stocks would continue to spiral downward, forced lower by an unfriendly Fed and slower economic growth. Few were willing to be bullish, given a drubbing took the S&P 500 down 24% between the end of 2021 and the end of September 2022.
Yet, not everyone was caught off-guard by the rally that catapulted stocks to back-to-back 20% returns in 2023 and 2024. Among the most bullish ahead of the stock market’s impressive gains was long-time Wall Street analyst Tom Lee, who has been navigating the stock market since the early 1990s.
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Lee and his team at Fundstrat have steadily sounded the bullish drum throughout, predicting most recently in December that the S&P 500 would reach 7,000, an all-time record, sometime in 2025.
Things, however, are moving quickly. When he issued his outlook, the Fed was still expected to embrace interest rate cuts this year. Now? Not so much. Most expect the Federal Reserve to sit on its hands this year because of sticky inflation, and that’s bad news for corporate profits.Ā
As a result, uncertainty is creeping in, and stocks have gotten more volatile. The recent action has caught Lee’s attention, prompting an update.
Tom Lee of Fundstrat recently weighed in on the recent market selling.
The stock market hits all-time highs
After rallying 24% in 2024, we’ve seen a few bumps in 2025, including a 2.5% dip in the S&P 500 ETFĀ (SPY) Ā and a 3.5% slide in the tech-heavy NASDAQ 100 ETFĀ (QQQ) Ā since February 19.
Related: Every major Wall Street analyst’s S&P 500 forecast for 2025
The sell-off has been worse for big-cap tech stocks, particularly those in the so-called magnificent seven. Tesla’sĀ (TSLA) Ā stock is down over 8% over the same period, and tech titan Nvidia has seen its shares slip 10% from their peak earlier this month. Artificial intelligence darling PalantirĀ (PLTR) Ā is down a whopping 27% from last week’s peak.
Needless to say, that’s raised some eyebrows, particularly given that technology stocks account for over 30% of the S&P 500 and have been a major reason behind the stock market’s epic run to all-time highs this month.
However, stocks don’t go up in a straight line. Pullbacks are common. And investors can’t be blamed for booking some gains given the record highs. Zoom out, and a long-term S&P 500 chart will look like a steady trend of gains. Zoom in, and you see there’s plenty of zigs and zags along the way.
Since 1954, the stock market has fallen at least 5% on average once per year, according to Capital Group, a money manager with over $2 trillion in assets. Bigger drops are far less common. A decline of 10% or more happens about every 30 months, while 20% bear market drops happen about every six years.
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That suggests that investors may not want to get too worked up about the recent retreat, at least not yet.
Analyst updates take after stock market dip
Lee isn’t fazed by the recent selling.
In fact, he thinks it’s encouraging that stocks haven’t fallen more, given we’ve gotten some discouraging news lately, including a subpar earnings outlook from retail giant Walmart and CPI inflation in January ticked up to 3%. It was 2.4% in September.
Related: Walmart issues stern warning about unexpected customer behavior
“The S&P 500 has had many chances for a deeper sell-off, but these declines attract dip buyers,ā said Lee in a recent Fundstrat research note.
That echoes what he said in January when stocks similarly took a break. At the time, Lee said, āBuying the dip continues to make sense, in our view.” That panned out, given that stocks recoveredĀ and made new highs this month.
Fundstrat’s chief technical analyst, Mark Newton, similarly isn’t ringing alarms.Ā
āWe havenāt seen any real deterioration in equities whatsoever,ā Newton said. āThe bigger picture is that the market is still in good shape.ā
The big takeaway? Fundstrat says Newton “expects to see the markets continue to consolidate over the next 3-5 days before posting a much larger push back to the upside.”
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
