Fundstrat’s Tom Lee cites a 1.1-point P/E contraction since January, projecting year-end S&P 500 targets between 8,000 and 8,800.
The S&P 500 is set for a July rebound as valuation compression creates room for earnings-driven gains. The SPDR S&P 500 ETF (SPY) has seen its price-to-earnings multiple shrink by 1.1 turns since January, despite a 9.22% year-to-date rise through July 2.
June’s 1.95% decline in SPY and a spike in the CBOE Volatility Index to 19.95 on June 25 set the stage for a sentiment reset. Lee expects second-quarter earnings to surprise positively, further supporting the rally. Goldman Sachs and Citigroup back AI-driven earnings growth, with Citigroup lifting its year-end S&P 500 target to 8,100.
However, Lee warns of potential volatility from August to October, citing the Fed’s inflation stance and liquidity pressures from a SpaceX share unlock.