Tom Lee Forecasts 2026: “Joy – Melancholy – And a Breakthrough” in a Tumultuous Year

Tom Lee – Chief Research Officer of Fundstrat Global Advisors – recently provided an overall outlook for the financial markets in 2026 during an interview with CNBC. According to him, 2026 will be a year of significant volatility but with a positive ending, as all market emotions – from euphoria, fear to recovery – will be “compressed” into the same year. Central Scenario: Early Year Volatility, Accelerating Toward Year-End Tom Lee describes the market movement model for 2026 with three words: “Joy, Depression and Rally” – Joy, Depression, and Breakthrough. He believes the market is likely to: Experience instability and concern in the first half of the yearThen bottom out and enter a strong recovery toward the end of the year Lee compares this scenario to 2025 – a year when the market started weak, bottomed around April, then gradually recovered and closed higher. He suggests that 2026 could repeat this pattern, even with larger volatility. The “Challenge” Market for the New Fed One of the main reasons the market could experience sharp fluctuations in early 2026, according to Tom Lee, is that investors will “test” the U.S. Federal Reserve (Fed) as monetary policy enters a new phase. “The market will test the reaction of the new Fed. That’s probably why fear has appeared this year,” Tom Lee commented. However, he believes that the macroeconomic fundamentals are supporting a more positive scenario in the medium and long term. Three Macro Drivers Supporting the Market Tom Lee points out several key factors that could propel the market in 2026:

1. Fed Rate Cut Cycle He expects the Fed to implement rate cuts, helping to reduce financial pressure and support risk asset valuations.
2. “Anniversarying” Effect of Tariffs Negative impacts from past tariff policies will gradually lose their year-over-year comparison effect, thereby easing pressure on growth and market sentiment.
3. ISM Above 50 If the (Institute for Supply Management) index returns above 50, it will signal that manufacturing activity is expanding again – a very positive cyclical indicator. Which Sector Will Lead the Market? Energy Stocks: Fundstrat’s Top Choice Tom Lee states that the energy sector is one of Fundstrat’s top picks for 2026. He emphasizes that this sector has lagged behind the overall market recently, leaving room for recovery and revaluation. Not Just the “Magnificent 7” In addition to the large-cap technology group (Magnificent 7), Tom Lee also values: Financial stocksSmall-cap stocks (small-cap) He believes these groups have superior potential as the economic cycle improves and interest rates decline. Meanwhile, the Magnificent 7 are still expected to maintain strong profit growth, but stock prices may more closely follow profit growth rather than expanding valuations. Corporate Earnings and the “Re-Rating” Story A notable point in Tom Lee’s forecast is: Corporate earnings may surpass expectationsMany sectors outside of large technology companies will be re-rated (re-rating) In this context, the overall market could see the P/E ratio decrease, not because prices fall, but because earnings grow faster than prices – a healthy scenario for long-term upward trends. Could Ethereum Benefit from This Scenario? Although the interview focuses on traditional financial markets, with: Expectations of Fed rate cutsRisk-on sentiment returning toward the end of the yearCapital flows tending toward risk assets Many investors are asking: Can Ethereum (ETH) and the crypto market benefit? With liquidity improving and risk asset valuations supported, ETH could very well enter a new bullish cycle, especially if capital flows shift away from defensive assets back into high-growth markets. Conclusion: 2026 Won’t Be Easy, But Worth the Wait In summary, according to Tom Lee: 2026 will not be a “calm” yearInvestors may have to endure volatility, fear, and adjustmentsBut the rewards could come at the end of the year, when macro factors align to support the market For those with patience, discipline, and good risk management, 2026 could be a head-scratching first half but a sweet finish – just as Tom Lee describes: Joy – Depression – And a Breakthrough.