Tom Lee, a prominent bull: U.S. stocks tend to bottom out in the early stages of war, and this round of adjustment is nearing its end.

Tom Lee (Fundstrat) says the S&P 500 has completed roughly 90%–95% of its decline and often bottoms within the first 10% of a war's duration, forecasting a V-shaped rebound; Fundstrat’s Mark Newton pins a short-term S&P low at 6,200–6,300. The S&P rallied 2.9% to 6,528 on de-escalation signals, and put-call ratio sits at 0.9, indicating extreme defensive positioning consistent with troughs. Lee argues inflation-adjusted oil at $100/bbl remains below century-average real highs (WTI would need ~$220–$240 to match 2008 peak) and that defense spending could add $20–$30B/month to GDP, partially offsetting oil risks.

Analysis

Market mechanics—not fundamentals—are the likeliest immediate engine of the next move. With positioning skewed heavily into cash and protection, a modest improvement in risk sentiment can trigger a cascade: dealer gamma relief, rolling short-delta structures being bought back, and forced covering across low-volatility longs can amplify a small flow into a multi-percent rally within days to weeks. This is a liquidity and flow story first, fundamentals second.

The medium-term macro picture argues for selective cyclicality. Higher energy prices lift cash generation at upstream and midstream firms and narrow fiscal stress at the federal level via increased receipts, while simultaneously pressuring margins for fuel-exposed services and transport. The response time of US supply (shale) and the lag to capex change mean elevated energy is likely to be lived with for a few months before global supply rebalances, creating a window where energy equities and defense-linked industrials can outgrow the broader market.

Key reversals that would invalidate a risk-on tilt are clear: a durable shift higher in real yields, renewed escalation that threatens maritime chokepoints or critical supply hubs, or a meaningful deterioration in breadth (leadership narrowness persisting beyond 4–6 weeks). Watch dealer gamma, net ETF flows, oil inventory prints, and real 10y yields as primary short-term gauges of whether a bounce is transient or durable.

Key Decisions for Investors

• Tactical risk-on via defined-loss options: Buy a 3-month SPY call spread (buy 5% OTM / sell 12% OTM) sized to 1.5–3% of portfolio notional. Entry on a 2-day positive reversal accompanied by above-median ETF inflows; target 25–50% return on premium, max loss = premium.
• Sector pair (3–12 months): Long defense primes (LMT, NOC) + short fuel-sensitive carriers (AAL, UAL) in equal dollar notional. Rationale: durable incremental defense demand vs immediate margin pressure on airlines; tilt size 2% net long, target asymmetric payoff ~20–30% vs 10–15% downside on the short leg.
• Energy capture trade (3–6 months): Overweight US E&P (PXD) and midstream (KMI) vs underweight refiners with high crack exposure. Use 3–6% notional; expected to capture upstream margin upside before broad market re-rates, stop-loss 20% on single-name move.
• Cheap tail protection / volatility arbitrage: Buy 3-month SPX 2–3% OTM puts (1% portfolio notional) OR a VIX 1-month call spread to protect against rapid escalation. If volatility collapses and flows continue to unwind, consider selling put spreads for premium recycling.