The Federal Reserve’s disappointing interest rate outlook on Wednesday sent stocks lower, but Tom Lee said investors shouldn’t worry. Stocks fell sharply after the Fed’s revised outlook for 2025 showed a more hawkish sentiment, with two fewer rate cuts than previously expected. “But for us, this panic reaction will be short-lived,” wrote Tom Lee, head of research at Fundstrat Global Advisors. “It’s a painful day, but the fundamentals haven’t changed. That’s why we think This is a ‘reversal’ moment.” Lee highlighted several reasons for the stock market downturn. He noted that the CBOE Volatility Index surged 74% on Wednesday, its second-highest gain ever. Lee said that historically, during the four largest peaks in the CBOE Volatility Index, stocks have fully recovered within a month. @VX.1 1M mountains of VIX volatility index over the past month. The S&P 500 is also testing the 50-day moving average for a 2024 rebound, Lee added. He also noted that despite the Fed’s hawkish comments, investors believe the Fed is ultimately dovish, albeit with less “visibility” heading into the new year. “In other words, the Fed remains supportive of the market,” Lee wrote. “We think this is more because the Fed wants to ‘slow down.'” Regarding these long-term themes, Li believes that small and mid-cap stocks are best suited to be potential beneficiaries. Specifically, he highlighted attractive names such as regional bank BancFirst, music streaming platform Spotify, online used car marketplace Carvana and burger chain Shake Shack.
