Fundstrat
Fundstrat's Tom Lee: Bumpy Few Weeks Ahead?
10/31/2025, 8:48:06 PM
Economic Summary
- A Key survey shows an average sentiment of -11.7 this year — only comparable to 1990, 2002, and 2022 — implying the current V-shaped rally is broadly unpopular and that many investors remain positioned defensively.
- About 80% of fund managers are trailing their benchmarks, the worst reading in nearly 25 years, which creates incentive for year-end catch-up buying if managers rotate into leadership.
- Fed Chair Jerome Powell acknowledged that tariff-driven inflation effects were smaller than expected and that many CPI components (54% in September) displayed deflation, indicating headline inflation is easing materially.
- Powell framed policy as 'less restrictive' rather than accommodative; if inflation continues to fall and the labor market weakens, this supports the case for rate cuts, which would be equity-positive.
- Near-term macro risk includes a persistent government shutdown slowing activity (e.g., air travel) that should depress inflationary pressures and contribute to economic softness, while markets may consolidate after October’s strong gains.
Bullish
- November seasonality historically positive, supporting further gains.
- Corporate margins have improved despite tariffs, providing earnings tailwinds.
- Falling inflation (many CPI components in deflation) increases odds of Fed easing.
- Underperforming managers may chase the rally into year-end, adding buying pressure.
Bearish
- Investor sentiment remains deeply negative (Key survey avg -11.7), consistent with past weak-market years.
- 80% of fund managers are trailing their benchmarks, creating pressure but also potential late selling.
- Small caps may underperform if expected rate cuts don't materialize.
- Near-term technical consolidation likely after a strong October rally; markets could be choppy.
People mentioned
Tom LeeScottJeffrey GunlockJerome PowellMark Newton