Fundstrat Managing Partner Tom Lee warned on Monday that U.S. stocks could face bear market-like moves in the Nasdaq and S&P 500 between August and October 2026. During a CNBC interview, Lee cited four potential triggers: Federal Reserve policy direction under Kevin Warsh's leadership, SpaceX's staggered lockup expiry beginning in the second half of this year, a cumulative petroleum shortage, and elevated margin debt levels. The warning follows a 1% decline in the S&P 500 and approximately 3% drop in the Nasdaq Composite during June.
Lee Identifies Four Market Headwinds for Second Half of 2026
Lee explained that markets would be watching the policy direction the Federal Reserve adopts under Kevin Warsh's leadership, citing Warsh's new framework and approach to inflation. He said that the lock-in period for Space Exploration Technologies Corp. (SPCX) will begin to gradually unlock during the second half of this year, which he considers another headwind for equity markets.
SpaceX has a staggered unlocking schedule for eligible insiders and employees, with the first 20% of shares held by them being eligible for unlock immediately after the company's Q2 results, expected to be reported in late July or early August this year.
"I do think there is going to be a cumulative shortage of petroleum products, so that's a headwind. And I think margin debt is kind of high. So I think [those] are the four things that could unravel in a way that might feel like a bear market," Lee said.
Lee Forecasts Stronger July Performance Following June Declines
Lee expressed optimism for equity markets in July, after the S&P 500 declined 1% during last month and the Nasdaq Composite fell around 3%. He expects Q2 earnings from U.S.-listed companies to surprise to the upside, following a better-than-expected performance in the second quarter.
"The markets are going to get cheaper again, and that means there is room for price-to-earnings (PE) to expand. So I think July is going to be a stronger month for stocks," Lee said. He added that fund managers trailing benchmark indexes this year could buy the dip in July after a weak June.
Lee Projects S&P 500 Could Reach 8,000-8,800 by Year-End
Lee said the S&P 500 could top 8,000 points by the end of 2026, but added that this is a low estimate, with the PE multiple around 20 for fiscal year 2027 earnings. "I think the PE multiple could be 22 or better, so that would be 8,400... 8,800 would be kind of the upside into year-end," he said.
Strategists at Morgan Stanley led by Michael Wilson expect the S&P 500 to end 2026 at 8,000 points, implying an upside potential of about 7% from current levels, following a surge of over 9% this year so far.
The S&P 500 ETF (SPY) is up 20% over the past 12 months, while the Invesco QQQ Trust (QQQ) is up more than 29%. The Dow Jones Industrial Average ETF (DIA) has gained 19% during this period. SPCX stock is up 8% year-to-date.
FAQ
What did Tom Lee warn about U.S. stocks in the second half of 2026?
Tom Lee warned on Monday that U.S. equity markets could face bear market-like moves in the Nasdaq and S&P 500 between August and October 2026, citing four potential triggers including Federal Reserve policy under Kevin Warsh, SpaceX's lockup expiry, petroleum shortage, and high margin debt.
When will SpaceX shares begin unlocking for insiders and employees?
SpaceX has a staggered unlocking schedule with the first 20% of shares held by eligible insiders and employees becoming eligible for unlock immediately after the company's Q2 results, expected to be reported in late July or early August this year.
What is Tom Lee's S&P 500 target for the end of 2026?
Lee said the S&P 500 could top 8,000 points by the end of 2026, with a potential upside range of 8,400 to 8,800 if the PE multiple reaches 22 or better for fiscal year 2027 earnings.
