Fundstrat head of research Tom Lee says the market is primed for a face-ripping rally into month end. He named four specific ingredients behind the call.

Lee, a CNBC contributor, joined Freedom Capital Markets’ Jay Woods as major indexes rebounded from last week’s selloff. Both agreed technology stocks are leading the bounce, though they disagreed on how far it can run.

Four Ingredients Behind the Rally Call

Right before his “face ripper” comment, Lee pointed to four specific factors.

• Oil prices cooling over the weekend
• Treasury yields easing in step with oil
• A hawkish Fed that could still soften its stance
• Oversold conditions across the broader market

Those four conditions, Lee said, add up to a rally with real momentum.

The Fed and Oil Give the Market Room to Breathe

Lee said last week marked maximum pain, driven by a hawkish Federal Reserve and elevated energy prices.

Oil has since cooled, and Treasury yields have followed it lower, taking pressure off risk assets, he said.

The relief follows the Fed’s rate hike from the prior week. The move had puzzled traders when it failed to trigger a broader selloff.

Lee argued the central bank could now soften its tone, given shifting inflation inputs like transport and energy costs.

“I think it is all the ingredients for a face ripper, especially given how oversold we are.”

Tom Lee, CNBC

Chip Stocks Lead, But Woods Wants Broader Confirmation

The rally’s leadership sits in AI-linked chip names, including AMD.

AMD’s move to a $1 trillion valuation reflects investor appetite for the trade. Woods calls it a tease between bulls and bears at the S&P 500’s 7,600 level.

Woods cautioned that energy prices fell for only one session, and little else had fundamentally changed.

He expects chip and software strength to push the S&P 500 toward its prior high near 7,800. Still, he doubts technology alone can reach fresh highs without confirmation from Micron’s earnings next week.

Lee countered that sentiment remains bearish beneath the surface. AI stocks are still trading below their June highs, and investors have de-risked heading into the Fed decision.

He reiterated his S&P 500 target of 8,000 for this month. He noted that crypto’s rally in August often leads stock moves by about a month.

The rally’s durability may hinge on next week’s earnings. Micron’s report will show whether chipmakers can broaden the gains or the bounce stays narrow.

Source: BeInCrypto