Have a look at a long-term chart of the stock market; it goes up and to the right. It’s a different story when you zoom in on the short term.
The reality is that while stocks have returned an average of about 10% since the late 1950s, they’ve taken all sorts of zigs and zags, pops and drops along the way.
Many might be remembering that point more recently.
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The stock market’s 24% return in 2024 may have led to complacency, but so far this year it’s been anything but complacent.
Despite Wall Street predictions for another year of gains, the S&P 500 has struggled since the calendar flipped to 2025.Â
First, the benchmark index took a 2.5% breather in early January before rebounding toward the end of the month. It did it again in February, tumbling by a similar amount from its February peak.
Related: Analyst who forecast Palantir rally updates stock price target
The volatility is likely raising investors’ eyebrows, and it’s caught the attention of Fundstrat’s longtime analyst, Tom Lee.Â
Lee, whose career stretches back to the 1990s, has been one of the most vocal stock market bulls. When everyone else predicted doom and gloom in 2023, he steadily beat the bullish drum â and continued doing throughout 2024’s twists and turns.
Certainly, there’s plenty to wring hands over. Inflation is creeping up again, jobless claims have surged, and many worry that the tech boom is too reminiscent of the internet boom, setting us up for a similar bust someday.
Those challenges aren’t lost on Lee, who offered up new thoughts amid souring sentiment.
FundStrat Global Advisors Managing Partner Tom Lee offered insight into recent market selling.
The stock market hits a rough patch
It’s not too surprising that stocks have retreated a bit. After all, the S&P 500 has been making new all-time highs, and it’s only natural for some investors to play defense and lock in some gains.
That’s particularly true for technology stocks, which have seen an even greater selloff. High-flyers like Tesla (TSLA) , Nvidia (NVDA)  and Palantir (PLTR)  have seen greater losses from recent peaks, tumbling 32%, 21% and 30%, respectively.
Related: Fund manager who predicted Nvidia rally revamps stock forecast
Those are pretty stiff losses for the buy-and-hold crowd. And it’s certainly been a big headwind for the S&P 500, given that technology stocks account for about one-third of the index and were a major driver of the market’s gains.
While the downshift is concerning, hitting the panic button might not be the right idea just yet. After all, pullbacks are common and healthy because they drive money to the sidelines, which eventually can fuel gains.
The stock market has fallen at least 5% on average once per year since 1954, according to Capital Group, a money manager with more than $2 trillion in assets.
Big drops are far less common. Declines of 10% or more happen only about every 30 months, and 20% bear-market drops occur roughly every six years.
Veteran analyst weighs in on stock market dip
Lee recommended buying the dip in January, and similarly he now says the recent market move could create an opportunity.
In a research note to clients, Lee noted a “growth scare” caused by lackluster consumer-confidence data.
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
The Conference Board’s February Consumer Confidence survey showed the index plummeted to 98.3 from 104.1 in January, the steepest one-month drop since summer 2021.
“While there are merits to these concerns, we also believe these concerns are likely only âflesh woundsâ that do not affect the long-term view for stocks this year,â said Lee.
The wound has flushed a lot of froth out of stocks. Every week, the American Association of Individual Investors polls its members on bullishness and bearishness. Its latest reading showed a surge in bearish outlooks for the next six months, to 60.6% from below 30% in late January.
Fundstrat points out that readings that high aren’t common and can signal upside. For example, sentiment was similarly poor in September 2022 near the bear-market bottom.
2025 stock market forecasts
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What happens next to stocks is anyone’s guess, but Lee also makes an interesting point. With stall-speed worries mounting and confidence falling, the chances that the Federal Reserve would reembrace dovish interest rate cuts might increase, offering support to stocks.
That said, investors have reason to exercise a bit more caution than they do in the seasonally strong fourth quarter.
“Looking at presidential cycles going back the last 100 years, historically, when you change administrations the first quarter of the first year tends to be very choppy,â said Fundstrat’s head of technical strategy, Mark Newton.
Related: Popular analyst delivers dire stock market prediction
