Despite ongoing geopolitical tensions in the Middle East, market strategist Tom Lee believes U.S. equities are poised for significant gains. After the S&P 500 hit fresh highs on Monday, he projects that it will clear the 7,700 mark this year, driven by resilient economic data and corporate productivity.
Clearing Early-Year Risks
Speaking to CNBC, Lee noted that investors have successfully navigated the three major hurdles at the start of the year: a potential escalation in the Middle East, private credit concerns, and Federal Reserve uncertainty.
Instead of buckling under pressure, the market is actively looking past these political events.
“We’ve come out the other side of this Iran war with the economy showing remarkable strength,” Lee stated. He emphasized that with corporate earnings estimates trending upward and structural fears regarding software-tied private credit subsiding, the foundation for stocks is exceptionally solid.
Summarizing his bullish outlook, he definitively declared, “I think S&P above 7700 is very probable.”
AI Productivity And Oil Factor
Beyond simply surviving early-year threats, Lee highlighted artificial intelligence (AI) as a major catalyst that is actively delivering tangible productivity and business growth. However, he cautioned that energy prices remain a crucial variable for the market.
Lee outlined two vastly different scenarios. A worst-case extended conflict could trigger a severe drawdown in global oil inventory, dramatically spiking prices and putting widespread global growth at risk.
Conversely, if tensions ease quickly, it would remove the “hostile oil premium” that has been priced in for a long time, naturally allowing broader equity markets to lift even higher.
The ‘Sleep Like A Baby’ Portfolio
To navigate the remaining market volatility, Lee acknowledged the logic behind a “sleep like a baby” portfolio—a defensive strategy advocating an equal 25% allocation across stocks, bonds, cash, and commodities.
Because technology and energy sectors often act as effective counter-hedges against one another, Lee agreed that this highly diversified approach makes a lot of sense right now.
He noted that incorporating total-return performers like gold, alongside crypto, provides a logical safety net for investors who want to balance risk while remaining exposed to the market’s continued upward trajectory.
S&P 500, Nasdaq 100 Hit Fresh Highs
The S&P 500 and Nasdaq reached record highs on Monday, while the Dow dipped slightly. Broader market gains were constrained by rising oil prices, driven by Strait of Hormuz tensions and stalled Iran peace talks.
After hitting a 52-week high at 7.178.74 points, the S&P 500 index closed at 7.173.91 points. Similarly, the Nasdaq 100 index eased from its 52-week high of 27.315.23 points to settle Monday at 27.305.68.
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 and Nasdaq 100, respectively, closed higher on Monday. The SPY was up 0.17% at $715.17, while the QQQ advanced 0.053% to $664.23.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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