Market Needs 2 Keys for 7,000

Wall Street strategist Tom Lee is once again dialing up his optimism for the stock market. But his bullish call comes with conditions: two key shifts need to fall into place before he sees the rally gaining full steam.

Lee, who heads research at Fundstrat, believes 2025 has unfolded in three distinct chapters so far. The first stretch, running from January through April, was dominated by tariff concerns that rattled investors and kept equities on uneven footing. Then came what he calls the “most hated” V-shaped rally—from April until now—when stocks surged despite widespread skepticism and under-invested portfolios.

Now, Lee argues, markets are on the verge of entering a third and defining stage: a dovish Federal Reserve combined with a long-delayed rebound in the Institute for Supply Management’s manufacturing index.

“The Fed will finally cut rates after staying on pause all year,” Lee said. “And the ISM will finally move back above 50 after more than 28 months in contraction.”

While the ISM gauge briefly touched above the 50 expansion threshold in January and February, it has struggled to gain momentum, spending nearly two years stuck below 51. A durable move higher would signal that manufacturing—an area that has been a drag on the economy—is stabilizing and recovering.

Lee acknowledges that the path forward may not be smooth. His colleague, Fundstrat technical strategist Mark Newton, has flagged the likelihood of a market correction in the fall. That pullback, Lee says, would be a natural reset as investors digest what the Fed’s first rate cut means for both markets and the economy.

“To us, this makes sense,” he explained. “The initial reaction to a Fed cut is always uncertain. But once the rate environment reflects a more dovish central bank, the backdrop improves significantly for stocks and the broader economy.”

Despite the bumps ahead, Lee remains confident in his year-end forecast: an S&P 500 target of 6,600. That implies meaningful upside from Tuesday’s close of 6,411.37, when the index slipped 0.59% after a volatile trading session.

For Lee, the story of 2025 is one of transition—moving past trade worries and skepticism into a phase defined by monetary easing and economic healing. If his two conditions are met, he sees stocks finishing the year with strength, setting the stage for even bigger gains in 2026.