Every once in a while, a forecast comes along that makes even seasoned investors stop scrolling and lean in a little closer. This week it was the latest note from Fundstrat’s Tom Lee – the guy who’s been one of the few voices consistently calling for higher highs while most of Wall Street kept waiting for the other shoe to drop.
His new target? S&P 500 at 7,700 by the end of 2026. That’s roughly 12% upside from where we closed yesterday. After three consecutive years of gains north of 20%, a lot of people are understandably asking: is this optimism, or is the bull market actually still in its prime?
A Bull Market That Refuses to Quit
I’ve been around long enough to remember when “wall of worry” was more than just a catchy phrase – it was the daily reality for anyone trying to stay invested through 2022’s inflation scare and the fastest rate-hike cycle in decades. Yet here we are, with the S&P 500 already blowing past Lee’s 2025 target of 6,600 and trading comfortably above 6,800.
The numbers speak for themselves. Communication services and technology – the twin engines of this cycle – are both up more than 25% this year alone. The “Magnificent Seven” trade might feel tired to some, but the performance certainly isn’t showing any fatigue.
“After 3 years > 20% yearly gains, bull market still alive. The significant ‘Wall of Worry’ is a tailwind for bull market.”
That single sentence pretty much sums up Lee’s entire philosophy right now. Markets climb walls of worry, and the thicker the wall, the more conviction it takes for investors to keep buying the dips – which, ironically, is exactly what fuels the next leg higher.
What’s Different This Time Around
Let’s be honest – we’ve all heard the “this time is different” line before, and it rarely ends well. But there are a couple of developments in 2026 that even skeptics have to admit could act as legitimate tailwinds.
First, the Federal Reserve leadership transition scheduled for next spring. Markets are currently pricing in a continuation of the current cautious stance, but a new chair could very well shift the committee toward a more accommodative posture in the second half of the year. Dovish policy in a growing economy has historically been rocket fuel for risk assets.
Second, the artificial intelligence spending wave still looks like it’s only in the middle innings. Corporate capex budgets for 2026 are being written right now, and every earnings call I listen to mentions AI infrastructure in one form or another. That’s real money chasing real productivity gains – not just hype.
The Sector Rotation Opportunity Nobody’s Talking About
Here’s where things get interesting. While tech has carried the load for years, some of the biggest percentage gains in 2026 could actually come from the laggards catching up.
- Materials sector: up a measly 5% this year
- Energy: only 7% gains despite oil holding above $70
- Financials: respectable but still trailing the broader index at +11%
These aren’t glamorous groups, but they tend to shine when the economy re-accelerates and rate cut expectations build. If the Fed does pivot dovish in the second half, financials benefit from steeper yield curves, energy gets a demand boost, and materials ride the infrastructure wave that always follows easier money.
In my experience, the most profitable moves often happen when leadership quietly shifts under the surface while everyone is still debating whether the old leaders can keep running.
Crypto Exposure: The Sleeper Catalyst
Lee specifically called out stocks tied to cryptocurrency as an area to watch. That might raise eyebrows for the traditional crowd, but look at what happened in 2024-2025 when regulatory clarity finally started emerging. Companies with clean crypto exposure delivered some of the most explosive returns of the entire bull market.
We’re not talking about buying random coins here – think publicly traded companies with real revenue streams in blockchain infrastructure, custody solutions, or mining operations that suddenly become profit machines when sentiment flips positive. The setup for 2026 looks remarkably similar to early 2024, right before that segment went parabolic.
Risks? Of Course There Are Always Risks
No forecast is complete without acknowledging what could go wrong. Inflation reaccelerating, geopolitical shocks, or a policy mistake from the new Fed leadership could all derail the party. But here’s the thing – markets rarely end bull runs when everyone is already hiding under their desks. They tend to end when complacency is at all-time highs and valuations are screaming caution.
Right now? Sentiment surveys show plenty of skeptics. Cash balances at brokerage accounts remain elevated. The fear-and-greed index spends more time in “fear” than “extreme greed.” These are the exact conditions that have historically allowed bull markets to keep extending.
Positioning for the Next Leg Higher
So what does all this mean for regular investors trying to figure out their 2026 strategy?
- Stay exposed to the AI theme – it’s still the primary growth driver
- Start looking at selective opportunities in materials, energy, and financials for diversification
- Consider small allocations to high-quality crypto-related equities as a high-beta satellite position
- Don’t try to time the top – let the market prove the bull is dead before you believe it
The beauty of a wall-of-worry bull market is that it doesn’t require perfect conditions – it just needs the absence of a recession and continued earnings growth. Both of those look reasonably probable from where we sit today.
Maybe the most telling part of Lee’s note wasn’t the 7,700 target itself. It was the simple observation that after three massive years, the bull market is “still alive.” In a world where most people expect mean reversion around every corner, sometimes the most contrarian bet is simply believing the trend can continue a little longer.
And honestly? History tends to reward those who respect the trend until it actually bends.
