Fund Frenzy: Can Portfolio Boosts Power the Rally?

Tom Lee Says Fund Managers’ Year-End Chase Could Drive the S&P 500 to 7,000

Is Wall Street facing a “Cockroach Crash”? JPMorgan CEO Jamie Dimon recently warned that when “you see one cockroach, there are probably more,” hinting that recent bankruptcies in the auto lending space may expose deeper risks in the financial system. His remarks, following the collapses of First Brands and Tricolor, sparked renewed concerns about credit exposure.

Those worries have already hit some regional banks. Shares of Zions Bancorp plunged over 13%, and Western Alliance Bancorp dropped nearly 11% after both revealed problems with borrowers. Private equity stocks have also felt the pressure, as anxiety spreads across the broader financial sector.

Still, this isn’t a full-blown meltdown. Even after recent declines, the S&P 500 remains only about 3% below its record high. And for bulls, such pullbacks are simply pauses in a larger uptrend.

That’s the view of Tom Lee, head of research at Fundstrat, who remains confident the S&P 500 could hit 7,000 by year-end. Lee believes the current bout of fear is temporary — and may even present opportunity.

He notes that the Cboe Volatility Index (VIX) spiked to 25 this week, the highest since the tariff-related volatility earlier this year. “Investors are reacting quickly because they remember Silicon Valley Bank in 2023,” Lee said. “I can understand the ‘fire, ready, aim’ mentality.”

But Lee sees stability beneath the surface. High-yield bond spreads remain far below previous stress levels, signaling that fundamentals haven’t deteriorated. “That gives me confidence things aren’t breaking down,” he added.

Investor sentiment also supports his bullish stance. According to the AAII survey, net bullish sentiment dropped by 12.7 points last week. “Low conviction among investors is a contrarian positive,” said Lee. “If people lose confidence this easily, it shows markets aren’t overhyped.”

Despite gloomy sentiment, the S&P 500 is up 13% in 2025, which Lee calls “the most hated V-shaped rally.”

He also points to strong corporate earnings as another foundation for the market. Of the 51 companies that have reported so far this season, 82% have exceeded earnings expectations, beating forecasts by an average of 6.3%.

Finally, Lee expects a performance-driven rally into year-end as fund managers try to catch up. “Only 22% of managers are beating their benchmarks this year — the worst rate since before 2000,” he said. “That creates motivation to buy leading stocks and push portfolios higher into December.”