Tom Lee predicts that U.S. stocks will continue to surge after the midterm elections! Rise to 7,700 before starting to correct, with 2027 being the "biggest increase of a lifetime."

Fundstrat Chief Strategist Tom Lee Interviewed by CNBC Points Out that U.S. stocks are in the first phase of a "three-stage cycle," with the market regaining momentum after the midterm elections, and 2027 to 2028 will become "the biggest rally of a lifetime for investors."
(Background: Tom Lee warns: After an epic surge in U.S. stocks, a 20% destructive crash is coming)
(Additional context: Federal Reserve regime change in 2026: The end of the Powell era, U.S. interest rates may be "cut all the way down")

Table of Contents

Toggle

• Earnings surprises support the first rally
• Triple pressures may trigger a correction by year-end
• 2027 is the real rally Lee is betting on

Summary Highlights

• Tom Lee points out that the S&P 500 Q1 earnings per share (EPS) is actually about $80, well above the market estimate of $70. If the trend continues, full-year EPS could add an extra $40.
• The second "digestive" phase may last until October, with three mega IPOs (SpaceX, OpenAI, Anthropic) potentially draining over $200 billion from the market.
• Lee predicts that 2027-2028 could be "the biggest gain of a lifetime for this generation of investors," with the market rebounding after the midterm elections (11/3).

The most well-known Wall Street bulls are also starting to hide bearish claws in the bull market. Fundstrat Global Advisors co-founder and chief strategist Tom Lee, in an interview with CNBC at the end of May, broke down the 2026 U.S. stock market into three acts: the first is the current earnings surprise boost, the second is the correction storm in the second half, and the third is the "largest rally in history" that he truly bets on.

Lee has successfully timed bull markets multiple times in recent years. When the market was near a bear market bottom in 2025, he called for a rally, and the S&P ultimately exceeded his target of 6,600 points. But this time, he is not calling for a continuous surge but has pre-emptively outlined a correction profile.

Earnings Surprises Support the First Phase of the Rally

As of June 4, the S&P 500 closed at 7,584 points, nearly an 11% increase year-to-date. Lee points out that the core driver is corporate earnings exceeding expectations: the market previously estimated Q1 EPS at about $70, but the actual result was close to $80.

FactSet data supports his view. 85% of S&P component stocks reported better-than-expected EPS, surpassing the five-year average of 78%, with an overall annual growth of 12.9%, six consecutive quarters of double-digit growth, and the highest positive surprise rate since Q2 2021.

Lee believes that if the trend continues, full-year EPS could increase by an additional approximately $40, which could theoretically add 800 to 1,000 points to the index, with a short-term target around 7,700 points.

$40 additional EPS corresponds to 800 to 1,000 points, implying an implied P/E ratio of roughly 20 to 25 times, which is already an optimistic assumption.

Triple Pressures May Trigger Year-End Correction

But Lee expects the sweet spot won't last long. The second phase could arrive quickly, lasting until around October, which he calls the "digestive period." Three forces will exert simultaneous pressure.

First is the policy vacuum at the Federal Reserve. New Chair Kevin Warsh was sworn in on May 22, but with the narrowest margin in history, the direction remains unclear. Second is the ongoing energy supply shocks fueling inflation concerns.

The most concrete pressure comes from the IPO wave. SpaceX is scheduled to go public on June 12, with a valuation targeting over $1.75 trillion and aiming to raise $75 billion; OpenAI plans to list in September with a valuation over $1 trillion; Anthropic submitted a confidential S-1 on June 1, planning to go public in October with an estimated valuation of about $965 billion. The combined total could drain over $200 billion from the open market.

Lee says this phase could even bring "similar to a bear market adjustment," but emphasizes that this is not a structural recession, just a digestion period.

$200 billion in new stock supply is not just a number; it’s a process of capital moving from existing holdings. Every stock in the index is competing for the same liquidity pool.

2027 is when Lee truly bets on the market

Lee is most bullish about the third act. He believes that the pressures during the digestion period will gradually subside after the U.S. midterm elections on November 3, and the market will resume its upward trend. Historical data also supports this: midterm election years often see increased volatility before the vote, and tend to rise in the 12 months afterward. This seasonal pattern has almost never been absent in the past 70 years.

More importantly, his outlook for 2027 and 2028: "It could be the biggest rally this generation of investors has ever experienced." Lee uses the phrase "in our lifetime," indicating a level of optimism rarely seen on Wall Street.

However, "direction is right but timing is often off" is Lee’s historical pattern. Interpreting the 7,700 as a ceiling rather than a floor might be a safer stance.

Frequently Asked Questions

What is Tom Lee’s prediction for the S&P 500 in 2026?

Tom Lee’s target for 2026 is 7,700 points. As of June 4, the S&P was at 7,584, about 1.5% below the target, but he warns that a bear-market-like correction could occur in the second half, and the big rally is expected in 2027.

What impact will SpaceX and OpenAI IPOs have on U.S. stocks?

The three major IPOs—SpaceX (June 12, valuation over $1.75 trillion), OpenAI (September, over $1 trillion), Anthropic (October, about $965 billion)—could drain over $200 billion from the market, creating short-term selling pressure and liquidity squeeze.