Fundstrat's Tom Lee Says 2026 Will Bring 'Joy, Depression, And Rally,' Backing Small Caps As Winners

Tom Lee, the head of research at Fundstrat Global Advisors and the CIO at Fundstrat Capital, has made some bold predictions for the S&P 500 in 2026. Lee Sees S&P 500 At 7,700 By 2026 End During Monday’s appearance on CNBC’s “Squawk Box,” Lee forecasted a significant rise in the S&P 500. He reiterated his projection of the index to reach 7700 by the end of 2026, with a possible 15-20% correction in the latter half of the year. Lee acknowledged that the market’s performance in 2026 would be marked by “joy, depression, and rally,” similar to the pattern seen in 2025. He attributed the potential market volatility to the Federal Reserve’s rate policies but expressed optimism about several factors, including the anniversary of tariffs, the Fed’s rate cuts, and a possible rebound in the ISM index. Lee also highlighted sectors that had previously lagged, such as energy, financials, and small caps, as potential sources of market growth. He mentioned that small caps had reached an all-time high in 2025, and lower interest rates were likely to benefit them. “Monetary easing, earnings growth is starting to look better, and if we have mergers, I think all of these are tailwinds for small caps,” stated Lee.See Also: Bernie Sanders, Kamala Harris, Warren And Others Slam Trump’s Venezuela Raid As ‘Illegal,’ Warn Oil-Driven Military Strike Risks Global Precedent Small Caps Poised To Lead Market Lee’s predictions align with the broader market outlook for 2026. Veteran investor and CIO of Navellier & Associates, Louis Navellier, recently advised investors to focus on stocks with strong earnings growth as the market experiences a potential “big flip” in January. This shift could further support the S&P 500’s growth, as suggested by Lee. Moreover, small caps are expected to outperform mid and large caps in 2026, according to Bank of America. It outlined five reasons small-cap stocks could surge in 2026: improving earnings momentum, a capex cycle that lifts revenues, Fed rate cuts easing financing pressures, lower tariffs and deregulation boosting margins, and attractive valuations supported by favorable positioning.This aligns with Lee’s positive outlook for small caps and suggests that the market could indeed see the growth he anticipates. Price Action: Over the past year, Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) and Vanguard S&P 500 ETF (NYSE:VOO) climbed 16.89% and 14.74%, respectively, as per data from Benzinga Pro. READ NEXT: Amazon, Meta, SpaceX, OpenAI And Trillion-Dollar IPOs Lead Futurum CEO Daniel Newman’s Top 2026 Tech Predictions Image via Shutterstock Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.