For close to half a year, Fundstrat Head of Research Tom Lee has been referring to the V-shaped rally we’ve experienced since April as one of the “most hated” in his memory. Last week, we saw some evidence that the “hate” was subsiding ever-so-slightly (see our Chart of the Week below).
Then on Friday, U.S.-China trade tensions intensified, with President Trump’s unambiguous response to China’s latest decision to intensify export restrictions on rare-earth materials. This was followed by a significant dip in both the S&P 500 and Nasdaq Composite that led both indices to finish the week in the red. The S&P 500 suffered its biggest one-day decline since April 21.
“I don’t want to be glib and say ‘hey this is nothing,'” Lee remarked on CNBC, but he remains largely unfazed. As he noted, the structural tailwinds that form the basis for his intermediate- and long-term constructivism are unlikely to be affected by a rare-earth dispute with China, and dips in 2025 have tended to be bought. Absent any structural change, Lee does not see why this time needs to be different. That doesn’t mean markets necessarily bottomed on Friday, but to Lee, “this pullback is a buying opportunity.”
For his part, Head of Technical Strategy Mark Newton suggested the possibility that Friday’s break of 6569, which technically violates late September lows along with the ongoing uptrend, might signify that a Fall correction had gotten underway, though this is still unconfirmed at the moment. Even if so, however, “I believe that a pullback […] should be healthy for U.S. equities ahead of a further push higher into year-end,” he wrote.
Sector Allocation Strategy
These are the latest strategic sector ratings from Head of Research Tom Lee and Head of Technical Strategy Mark Newton – part of the October 2025 update to the FSI Sector Allocation Strategy. FS Insight Macro and Pro subscribers can click here for ETF recommendations, precise guidance on strategic and tactical weightings, detailed commentary, and methodology.
Chart of the Week
The latest American Association of Individual Investors (AAII) survey showed sentiment uninverting: The bullish reading rose to 45.9%, the highest since January, flipping the sentiment metric net bearish to net bullish (+10.3%). For those inclined toward contrarianism, however, Lee remarked, “I don’t see the flip to positive as that consequential.” As shown by our Chart of the Week, the extent of net bullishness is still at or below even levels seen for much of 2024, a year in which the S&P 500 rose 23%. In any case, the re-intensified trade tensions between the U.S. and China that emerged on Friday also call into question whether this uninversion will endure.
While it’s normally important not to pay attention to news events and headlines from the Administration until they result in tangible action, today’s comments regarding the trade deal souring with China have put the Trump/XI meeting in jeopardy. SPX broke 6700 and is currently lower by -1.5% as the violation of 6700 resulted in some quick acceleration lower by 80 points in the last 90 minutes. Treasury yields are plunging and the US Dollar has reversed lower today. Emerging markets are being particularly hard hit as China’s Large-cap ETF by Ishares, FXI -5.50% has plunged on heavy volume down to 38.87 from yesterday’s $40.51 close. (See last night’s Technical note for reasons why EEM might underperform in Q4) At this point, the main area to watch for ^SPX will occur near 6600 and then late September lows at 6569. This can’t be broken without suggesting a Fall correction is upon us. For now, this is early, and i do suspect that SPX stabilizes and turns higher next week. However, breadth and momentum have been waning in the last week and i do anticipate that upside should prove limited to 6800, while a break of 6569 would bring about a 5% drop into November.
Near-term ^SPX pattern shows price having hit support near the hourly trend channel since early October and turning up today. This is a positive and should lead SPX to push higher up to 6790-6800 area. Furthermore, it’s likely that this trend pushes higher sharply today in a wave 3 type pattern before settling and then a 5 into next week, which could hit resistance. Key support lies at 6716 near yesterday’s lows. If this were to be broken, it would result in weakness, which isn’t expected right away.
TSLA -5.34% has advanced nicely in recent weeks and yesterday’s rally likely paves the way for a coming challenge of $488 before some stalling out and possible consolidation into November. While i expect that TSLA likely will push up to potentially $600-$700 into January, i’m not yet expecting that this happens over the next month. At present, the potential Elliott-wave count is shown below and despite poor German sales, i anticipate TSLA to rise to challenge and exceed last Thursday’s peaks at $470.75 to near $488 before stalling in the short run. Overall, i remain quite bullish on TSLA and it’s right to be long technically, looking to buy dips if/when they arise over the next month.
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