Fundstrat's Tom Lee says the market has bottomed, stocks are headed to all-time highs

A U.S.-Iran ceasefire triggered a broad risk-on rally: the Dow surged more than 1,300 points (its best day since April 2025) and WTI crude plunged over 16% (largest drop since April 2020). Fundstrat's Tom Lee sees the S&P 500 reaching 7,300 by year-end (a ~7.6% gain) with the Mag 7, software, energy and financials leading the move. CNBC's Mag 7 Index and XLF both closed >2% higher, and Lee flagged Ethereum as the top-performing asset since the conflict began.

Analysis

The move from geopolitical risk to risk-on is amplifying an earnings and multiple re-rating channel for the largest growth franchises, not just a headline-driven bounce. Lower energy-driven inputs and implied volatility compression should mechanically boost free cash flow yields (via lower opex and higher buyback capacity) for data-center and software-heavy firms over the next 3–9 months, rotating capital into high-earnings-visibility names and away from commodity hedges.

A critical second-order effect is breadth risk: liquidity and flows are likely to concentrate in a handful of large-cap technology names, increasing dispersion and making index-level upside fragile if any single “lead” name disappoints. Expect transient 20–30% realized return swings in single stocks even as indices grind higher; this favors pair trades and volatility-managed exposure over naked long index positions in the coming 1–3 months.

Tail risks that could reverse the trend include a re-escalation of hostilities (weeks), a faster-than-expected hawkish pivot by the Fed (months), or a liquidity repricing driven by ETF concentration (weeks to months). Conversely, structural drivers—AI revenue capture, enterprise software secular adoption, and higher long-term crypto adoption—support asymmetric multi-quarter upside independent of near-term geopolitics.

On horizon timing: trade best entries in 0–10 trading days post-decompression when flows are still rotating; use 3–9 month option structures to capture both the near-term relief rally and the secular drivers. Maintain tight idiosyncratic hedges sized to potential 25–35% single-stock drawdowns.

Key Decisions for Investors

• Directional long NVDA via 3-month call spread (buy ATM, sell +20–25% strike) sized 2–3% of portfolio. Rationale: captures AI earnings multiple expansion while capping premium paid; target 30–50% upside on premium, max loss = premium paid. Stop: unwind if NVDA drops >20% from entry within 6 weeks.
• Pairs trade: long equal-weight MAG7 basket (AAPL, GOOGL/GOOG, AMZN, NVDA, META, MSFT, TSLA) vs short XLE at 1:1 dollar exposure for 1–3 month horizon. Rationale: short-term rotation into large-cap growth should outperform energy on cooling commodity-driven risk; target 200–400bps relative outperformance, stop if oil front-month futures rally >15% from current levels.
• Crypto exposure: accumulate ETH spot or buy 6–12 month ETH call spreads (buy 1x ATM, sell +40–60% strike) sized 0.5–1% portfolio. Rationale: asymmetric payoff if risk-on persists and institutional flows resume; expect 2–5x on premium in bullish scenarios, max loss = premium paid.
• Risk hedge: purchase 3-month SPX puts equal to 3–5% portfolio notional (protects against breadth blow-ups). Rationale: concentrated index upside but high single-name tail risk; consider delta-hedged put structures to reduce carry if volatility normalizes.