Fundstrat’s head of research, Tom Lee, is once again turning more optimistic on the stock market—but with an important caveat. His latest outlook hinges on two critical developments that he believes could set the stage for a powerful rally into the final months of 2025.
Lee, who has earned a reputation for calling major market inflection points, argues that the year so far can be divided into three distinct phases. The first stretch, from January through April, was dominated by fears over tariffs and the potential fallout from escalating trade tensions. That period kept investors on edge and weighed heavily on sentiment.
What followed, according to Lee, was the “most hated” V-shaped recovery—a sharp rebound that caught many investors under-positioned and skeptical. From April until now, U.S. equities have staged an impressive advance despite lingering concerns about global growth, Federal Reserve policy, and geopolitics. Lee believes we are now entering a third and final phase, one that could define how the year closes out: a more dovish Federal Reserve paired with a long-awaited recovery in the U.S. manufacturing sector.
“The Fed will finally cut rates, after being on pause for the entire year of 2025,” Lee said. “At the same time, the ISM manufacturing index will finally recover back above 50, after spending more than 28 months in contraction territory.”
The ISM gauge—which tracks business activity in the manufacturing sector—did briefly poke above the 50 threshold in January and February, signaling marginal expansion, but has otherwise languished below 51 for the past two years. A sustained move higher would be viewed as a sign that the industrial side of the economy is finally stabilizing and even strengthening, something that equity bulls have been waiting for.
Still, Lee cautions that the journey higher won’t be a straight line. His colleague, technical strategist Mark Newton, is calling for a potential correction this fall, which could serve as a reset before the market resumes its climb. “To us, this makes sense,” Lee explained. “We just don’t know how stocks might initially react to a Fed cut. But once interest rates begin to reflect a dovish central bank, the environment becomes favorable for both the economy and equities.”
Despite the possibility of near-term turbulence, Lee is sticking with his bold forecast: he sees the S&P 500 finishing 2025 at 6,600. That target implies additional upside from current levels, even after a choppy session on Tuesday that left the index closing at 6,411.37, down 0.59% on the day.
Lee’s view underscores a broader theme among some market strategists—that while volatility and pullbacks remain part of the picture, the structural supports of easing monetary policy and economic recovery could propel stocks to fresh highs before the year is out.
