Fundstrat’s Tom Lee Warns of a Market Digestion Period Ahead of U.S. Midterm Elections

ME AI message: Tom Lee, strategist at Fundstrat, told CNBC that the current market is in a cycle that could unfold in three phases, with the second phase potentially bringing a bearish-style correction. Lee has long been known for his bullish stance and has successfully predicted bull markets multiple times over the past few years. However, this time, he believes the market will not move smoothly in the short term. As of early June, the S&P 500 had risen nearly 11% year-to-date, despite challenges earlier in the year including skepticism about artificial intelligence prospects and rising energy prices due to tensions in Iran, which added inflationary pressure. Lee pointed out that corporate earnings have significantly exceeded expectations, serving as a key driver of market gains. While the market had generally anticipated first-quarter EPS of around $70, actual results came in at approximately $80. He noted that if this trend continues, it could add roughly $40 in additional EPS for the full year, theoretically pushing the S&P 500 up by another 800 to 1,000 points. According to Lee, the first phase remains bullish. As of June 3, 2026, the S&P 500 stood slightly above 7,560; he believes there is still upside potential in the near term, possibly reaching around 7,700. The second phase may arrive soon and become a period of market consolidation. In his CNBC interview, Lee said: “Between now and October, the market needs to digest multiple factors.” He cited pressures including policy uncertainty under the new Fed chair, energy shocks—particularly shortages in petroleum products and lubricants—and additional stock supply from IPOs and lock-up expirations by companies such as SpaceX, OpenAI, and Anthropic. (Source: ODAILY)