Tom Lee: February Felt Like a Bear Market… It’s Not

Episode Overview

• This segment features Tom Lee from Fundstrat discussing the current state of the stock market, specifically addressing the recent volatility and nervousness surrounding AI stocks like Nvidia.
• The discussion frames the broader market anxiety as potentially overblown, with Lee arguing that the long-term bullish thesis for AI remains intact despite short-term fluctuations.
• Viewers will gain insight into Lee's perspective on why the U.S. economy might be accelerating rather than slowing down, and why he believes March could be a turnaround month after a difficult February.

Key Concepts

• The Global AI Landscape favors the U.S.: Lee argues that investors are getting lost in the weeds of daily price movements and missing the macro picture. He posits that the U.S. (and possibly China) are the only two real global beneficiaries and creators of AI technology. Therefore, the S&P 500 should be a net beneficiary of the AI boom, regardless of short-term volatility.

• Valuation Normalization for High-Growth Tech: The interview highlights a discrepancy between Nvidia's stellar earnings (revenue growing over 70% year-over-year) and its sluggish stock performance. Lee suggests this is a period of "digestion" or consolidation where the stock's price-to-earnings (P/E) multiple compresses while the fundamentals catch up. He notes that Nvidia is now trading at a lower multiple than some consumer staples like Costco, which he views as a buying opportunity.

• Growth Scare vs. Risk Premium: There is a debate in the market about whether recent weakness is due to a slowing economy ("growth scare") or just market nervousness ("risk premium"). Lee firmly believes it is the latter. He points to alternative data, such as trucking rejection rates, which suggest the economy is actually accelerating. This implies that the current market dip is a psychological reaction rather than a fundamental economic breakdown.

Quotes

• At 0:39 - "When it comes to the global implications of AI, it's really just the US and possibly China as the two real creators and beneficiaries of AI... ultimately that also means that the S&P 500 should be a net beneficiary." - explaining why the broader US market is positioned to win from the AI trend despite short-term noise.

• At 1:52 - "Does it make sense that Nvidia should trade now at half the PE multiple of a lot of consumer staples like Costco which trades at almost 50 times earnings?" - highlighting the relative valuation anomaly where a high-growth tech stock has become cheaper than a slow-growth defensive stock.

• At 3:22 - "I think if there is a growth scare, it's really just more of a risk premium than it is companies actually delivering news that would scare you about the economy." - distinguishing between market sentiment (fear) and actual economic data (reality).

Takeaways

• Look for opportunities in valuation compression: When a high-growth company delivers strong earnings but the stock price stagnates or drops, it often results in a more attractive P/E ratio. Investors should watch for these consolidation periods as entry points, rather than viewing them as signs of fundamental failure.

• Monitor alternative economic indicators: To gauge the true health of the economy, look beyond headline stock market indices. data points like trucking rejection rates can offer early signals of economic acceleration or deceleration that the stock market hasn't priced in yet.

• Prepare for monthly seasonality: Recognize that market sentiment can shift based on the calendar. If a specific month (like February) is historically or currently weak due to technical factors or sentiment, do not assume this trend will continue linearly; be prepared for a potential reversal in the following month (like March).