Tom Lee: Wars are often buying opportunities; the S&P 500's year-end target remains at 7,700.

Fundstrat Founder Tom Lee forecasts that the S&P 500 index will end the year at 7,700 points, citing historical data from 20 major military conflicts since World War II, indicating that geopolitical events are often buying opportunities rather than long-term negatives. He also warns that a 15% to 20% pullback may occur later this year but emphasizes that the Federal Reserve’s quantitative tightening (QT) is expected to end on December 1.

Tom Lee’s Bullish Core Arguments: Monetary Policy and Long-Term Cycles

Tom Lee expects the Fed to start cutting rates in December and views the end of QT as a more direct liquidity trigger. He references a historical case from 2019: after the Fed ended QT in September of that year, the U.S. stock market rose over 17% in just three weeks. If a similar policy shift occurs in December 2026, he believes the market could see an equally rapid rally.

On a long-term basis, Tom Lee believes the bull market that began in 2022 is still in its early stages, potentially lasting until 2035 to 2038, aligning with the peak of the millennial population. This population-driven bull case suggests that any correction in 2026 should be viewed as a long-term allocation opportunity rather than a trend reversal signal.

Historical Military Conflict Data: Market Recovers Within 28 Days in 19 Cases

Tom Lee’s “wars are buying opportunities” thesis is based on concrete historical data. Analysis of 20 major military events since World War II shows that the S&P 500 typically declines about 6% from impact to the lowest point, and in 19 of these cases, the market rebounded to pre-event levels within approximately 28 days.

Market Response to Historical Conflicts

General military conflicts (18 cases): Average maximum decline of about 6%, with quick recovery within 28 days, and no fundamental impact on long-term trends.

Yom Kippur War (1973): Severe oil supply disruptions caused double-digit declines, an exceptional historical case.

Gulf War (1990): Also caused oversold conditions due to oil crisis, another major exception.

Early Russia-Ukraine conflict (2022): Limited actual supply disruptions, with a relatively mild market response consistent with typical historical patterns.

Analysis indicates that severe oil supply disruptions are the only triggers associated with double-digit declines. If current geopolitical tensions do not cause similar energy supply shocks, the rapid recovery pattern observed historically is likely to repeat.

Market Breadth Concerns: Capital Rotation Worth Watching

Despite Tom Lee’s optimism, market breadth data reveal a divergence worth monitoring. In January 2026, the top 50 stocks in the S&P 500 declined 0.5%, while the S&P SmallCap 600 rose 5.6%, indicating capital rotation from large caps to small and mid-cap stocks.

In terms of ETF flows, Vanguard S&P 500 ETF and Vanguard Global Stock ETF saw net inflows, reflecting strategic rebalancing and increased allocations to value stocks, international markets, and sectors like energy, materials, and consumer staples. Defensive assets also gained: the Global X Defense Technology ETF (SHLD) attracted over $1 billion in January and has risen about 20% year-to-date, suggesting some investors view geopolitical uncertainty as an opportunity in specific industries rather than a systemic threat.

Frequently Asked Questions

Q: What are the bases for Tom Lee’s year-end target of 7,700 for the S&P 500?
A: His target rests on three pillars: liquidity from the end of Fed QT (similar to the 17% rally three weeks after QT ended in 2019), the long-term bull cycle supported by millennial demographic trends, and historical patterns of rapid market recovery following military conflicts.

Q: How much historical support is there for the idea that “wars are buying opportunities”?
A: According to Tom Lee’s cited data, in 19 of 20 major conflicts since WWII, the market recovered to pre-conflict levels within about 28 days, with an average maximum decline of around 6%. Severe oil supply disruptions (1973 and 1990) are the main exceptions.

Q: Does Tom Lee’s warning of a 15% to 20% correction mean investors should exit now?
A: Tom Lee views such corrections as normal adjustments within a long-term bull market rather than trend reversals, and considers them buying opportunities. He believes the bull cycle initiated in 2022 could extend until 2035–2038, with short-term volatility not altering the long-term outlook.