To The Moon

FundStrat head of research Tom Lee pictured in 2017. The closely followed strategist has predicted a divided year for the S&P 500 in 2025.PHOTO: CINDY ORD/GETTY IMAGES FOR YAHOO

Fundstrat’s Tom Lee is no longer one of Wall Street’s biggest bulls. Why he’s cautious on 2025.

Fundstrat’s Tom Lee, who has earned respect on Wall Street for some accurate S&P 500 index calls, has also been one of the stock market’s biggest bulls in recent years.

But after two years of back-to-back 20%-plus gains for the index: $.SPX(.SPX)$ , $iShares Russell 2000 ETF(IWM)$ $Financial Select Sector SPDR Fund(XLF)$ $Bitcoin(BTC.USD.CC)$

Lee is taking a more cautious stance for 2025, predicting a climb to 7,000 midyear, but a lower finish of 6,600. That end-year forecast puts Fundstrat’s head of research in the middle of the big bank outlooks that range from 6,400 at UBS to 7,100 at Oppenheimer.

Lee lays out the tailwinds he sees for the first half of the year in Fundstrat’s 2025 outlook that published late Tuesday. The first is a “Fed put” option — a belief by some investors that the central bank will do what it takes to prevent an economic or financial markets collapse — as inflation eases and the central bank puts an emphasis on supporting employment.

Lee sees another “put” by President-elect President Donald Trump via policies from the incoming administration to lift business confidence and company earnings. He expects so-called animal spirits will return for markets, boosted by those two “puts.”

Lee said earnings per share (EPS) growth for 2025/2026 could reach a respective $275 and $300, with a weaker dollar also potentially boosting EPS.

As for his call that the S&P 500’s fortunes will fade later in the year, Lee looked at the history of back-to-back 20% gains, in five precedents since 1871. In four of those five years, stocks fall in the following year, apart from one positive year in 1996. All five precedents saw stocks do worse in the second half of the third year after those two 20% winning years.

Another downside revolves around Lee’s worry about a “too effective” newly planned Department of Government Efficiency, to be led by Tesla CEO Elon Musk and former Republican presidential candidate Vivek Ramaswamy, who are aiming to trim $2 trillion a year from the federal budget. The strategist says spending cuts could end up hurting economic growth, which could also be impacted if Trump carries through on import tariff threats.

Lee has been a persistent bull on the S&P 500, nailing its 2023 finish and set to come fairly close for 2024 — he lifted his end-year forecast to 6,000 in October, though expressed some caution in September. Lee has suggested the index could reach 15,000 by the end of the decade.

So where does he suggest clients park their money?

The small-cap iShares Russell 2000 exchange-traded fund $iShares Russell 2000 ETF(IWM)$ is a beneficiary of animal spirits returning, he says, with financials, via the $Financial Select Sector SPDR Fund(XLF)$ also among his picks and bitcoin-related assets.

As for bitcoin $Bitcoin(BTC.USD.CC)$ , which recently pushed above $100,000 for the first time, Lee is targeting $250,000, with upside to that next year, as he sees two tailwinds for digital assets next year. One is a “halving” price cycle — an event that cuts rewards for those mining bitcoin in half and helps limit supply — that already favors bitcoin upside in 2025, a friendlier regulatory environment under Trump, he said.