One of Wall Street's Most Bullish Market Strategists Sees a 3-Phased Market Coming That Includes a Correction or Bear Market

Tom Lee warned that the market may face a challenging window through October, with the S&P 500 already up nearly 11% this year and potentially rallying to about 7,700 before a pullback. He cited higher gas prices, elevated inflation, a new Fed chair, rising bond yields, and possible $1T-plus IPO unlocks from SpaceX, OpenAI, and Anthropic as pressure points. Lee expects conditions to improve after the midterm elections, but near-term risk appears skewed toward a correction or bear-market-style digestion.

Analysis

The setup is less about one strategist getting cautious and more about the market transitioning from multiple expansion to supply/duration stress. A new Fed chair, sticky energy, and a potential wave of giant IPO unlocks all point in the same direction: higher equity risk premium and weaker marginal bid for mega-cap growth. That combination is especially relevant for AI leaders, where the market has already been paying up for scarcity; any fresh supply in adjacent private-market winners could compress multiples even if fundamental demand stays solid.

Second-order, the biggest vulnerability is not the named IPOs themselves but the signal they send to allocators. If a trillion-dollar listing or lock-up event clears poorly, it can prompt PMs to de-risk the entire AI complex, not just the issuer, because it implies public-market demand is not elastic enough to absorb the next leg of the trade. That would pressure NVDA more than INTC on a relative basis: NVDA is the higher-duration crowded winner most exposed to valuation compression, while INTC is more insulated on multiple but still benefits if capital rotates away from single-name momentum and into value/industrial policy narratives.

The market’s main reversal catalyst is simple: either inflation cools enough to flatten yields, or the energy shock fades before October. Until then, the path of least resistance is range-to-down as liquidity is siphoned into primary issuance and discount rates stay noisy. NFLX looks least directly impacted here, but as a high-quality large-cap growth proxy it can still act as a safer shelter than semis if the market starts punishing long-duration cash flows.

Contrarian read: the crowd may be overestimating how much one or two mega-IPOs can drain from public equities. If those deals are delayed, priced conservatively, or met with weak retail participation, the feared supply overhang becomes a non-event and the market may snap back faster than consensus expects. In that case, the right trade is not to chase broad hedges, but to buy volatility around specific calendar dates and keep exposure concentrated in names with durable earnings momentum.

Key Decisions for Investors

• Trim 20-30% of NVDA into strength over the next 1-2 weeks; use any failed breakout to add back via Jan-2027 call spreads only if yields stabilize. Risk/reward: protects against multiple compression while keeping upside if AI demand re-accelerates.
• Put on a tactical pair trade: long NFLX / short NVDA for the next 4-8 weeks. NFLX has less duration and less direct exposure to IPO-supply sentiment; NVDA is more vulnerable if the market starts questioning AI marginal demand.
• Buy 2-3 month SPY put spreads or VIX call spreads heading into the October window. Target a 2:1+ payoff if yields re-rate or a flagship IPO prices poorly; cap premium at a small % of book.
• For more defensive beta, rotate a portion of broad tech exposure into INTC or other lower-multiple semis/industrial AI beneficiaries over the next month. The trade works if the market rewards cash-flow visibility over narrative expansion.
• Avoid chasing new large-cap IPOs until after lock-up structure and book quality are clear; if one prices below range or trades poorly in week one, use that as confirmation to increase hedges rather than buy the dip.