"The Wall Street Whiz Kid" Warns: Market 'Digestion Period' Is Coming, Big Rally Expected After US Midterm Elections

On June 5th, Fundstrat strategist Tom Lee told CNBC in a recent interview that the current stock market is unfolding within a three-stage cycle. A well-known Wall Street bullish analyst with a track record of correctly timing bull market rallies multiple times over the past few years, Lee notes this round of gains will not be a straight upward trajectory. As of early June, the S&P 500 has climbed nearly 11% year-to-date, even amid headwinds like ongoing debates over artificial intelligence (AI) prospects and inflationary pressure from rising energy prices. Lee identifies corporate earnings beating market expectations as the core driver of the rally. Prior to first-quarter results, consensus forecasts had pegged S&P 500 earnings per share (EPS) at around $70; actual EPS came in close to $80. If this trend continues, full-year EPS could rise by an additional $40— a development that theoretically would provide the S&P 500 with upside of 800 to 1000 points. For now, Lee says the current uptrend remains in its first stage: the index stood just above 7560 in early June, leaving room for a short-term run to roughly 7700 points. That said, Lee forecasts the market will soon enter its second stage: a digestion period lasting through October. He points to several potential pressures: policy uncertainty tied to the Federal Reserve’s new chair, energy supply shocks, and increased stock supply from upcoming IPOs and lock-up expirations for high-profile firms like SpaceX, OpenAI, and Anthropic. These factors could weigh on stock prices, possibly sparking a correction similar to a bear market pullback. But Lee expects this phase will fade after U.S. midterm elections, clearing the way for the market to resume its upward momentum. He predicts 2027 will emerge as “one of the best years this generation of investors has ever experienced.”