The Bull Case for 2026 — ft. Tom Lee
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Podcast Summary
In this dynamic episode of Prof G Markets, co-hosts Ed Elson and Scott Galloway sit down with Tom Lee, co-founder and head of research at Fundstrat Global Advisors, for an engaging conversation about why 2026 could be an exceptional year for markets. (09:49) Lee argues that despite six major "extinction events" over the past four years - from COVID to aggressive Fed rate hikes - the economy and markets have been artificially suppressed and are poised for significant expansion. The discussion covers everything from AI valuations and the magnificent seven tech stocks to Bitcoin's volatile journey and why Lee maintains his bullish stance in a sea of market bears. (64:00)
- Main Theme: Market optimism for 2026 despite widespread skepticism, with deep dives into AI investing, crypto volatility, and the evolving nature of equity research in an automated world
Speakers
Tom Lee
Tom Lee is the cofounder, managing partner, and head of research at Fundstrat Global Advisors, a leading independent research firm. He has more than twenty-five years of experience in equity research and has been top ranked by Institutional Investor every year since 1998. Prior to co-founding Fundstrat, he served as JPMorgan's chief equity strategist from 2007 to 2014.
Scott Galloway
Scott Galloway is a professor at NYU Stern School of Business and serial entrepreneur who founded companies including L2 and Red Envelope. He's the author of several bestselling books and co-hosts Prof G Markets, bringing decades of experience analyzing technology, media, and market trends.
Ed Elson
Ed Elson is the co-host of Prof G Markets and brings a fresh perspective to market analysis and financial journalism. He regularly interviews leading figures in finance, technology, and economics to decode complex market movements for listeners.
Key Takeaways
Markets Climb Walls of Worry, Not Euphoria
Lee emphasizes a fundamental market principle: stocks tend to rise when there's widespread skepticism and fall when everyone becomes bullish. (13:45) He points out that despite multiple "black swan" events over the past four years, the persistent wall of worry has actually supported market gains. This contrasts with bubble periods like the late 1990s when excessive optimism and entitlement among investors preceded major corrections. The current environment, characterized by skeptical institutional investors and disciplined cash deployment, suggests more upside potential than downside risk.
AI Valuations Follow Historical Technology Adoption Patterns
When addressing concerns about AI valuations, Lee draws parallels to the Internet boom, noting that even buying Internet stocks at the 1999 peak and holding them outperformed the S&P 500 despite 99% of individual stocks going to zero. (22:08) He suggests that while 90% of current AI investments may disappoint, the sector as a whole will likely outperform when viewed as a diversified basket. This perspective is crucial for understanding why current AI valuations, while seemingly expensive, may be justified by the exponential growth potential and the difficulty of discounting future value back to present terms.
Technology Spending is Economic Necessity, Not Speculation
Lee provides a compelling demographic argument for increased technology spending, explaining that we're in the third era of labor shortage (2018-2035) due to population growth outpacing prime workforce growth. (25:15) This makes technology investment a necessity rather than speculation, similar to how financial services spending scales with GDP growth. He argues that calling current tech concentration a "bubble" is like calling financial institution spending a bubble - both are integral to economic function. This framework helps explain why magnificent seven companies command such large market capitalizations and why their capital expenditure increases are economically rational.
Professional Survival Requires Future-Focused Thinking, Not Data Processing
In discussing what makes analysts irreplaceable in an AI world, Lee explains that AI excels at historical data analysis but struggles with future scenario planning involving multiple unknown probabilities. (48:22) The key differentiator for professionals is the ability to assess probabilities of future events, distinguish between conviction and stubbornness, and understand what's already priced into markets. This requires constant client interaction, market sentiment analysis, and human judgment about how various stakeholders will react to changing conditions - skills that remain uniquely human despite AI's analytical capabilities.
Small Caps and Financials Represent Significant Undervaluation Opportunities
Lee identifies two dramatically undervalued sectors: small caps, which are experiencing real earnings growth but minimal money flows due to professional investor neglect, and financials, which he believes are transforming into technology companies. (62:43) He argues that as money becomes more digital and AI implementation accelerates in financial services, companies like JPMorgan could dramatically reduce their human dependency while improving operational efficiency. This transformation could justify tech-like multiples (30 PE) rather than traditional banking multiples (10 PE), representing substantial revaluation potential.
Statistics & Facts
- The median tenure of a portfolio manager today is nine years, meaning most have only experienced markets since 2015, lacking historical perspective on major market cycles like the 1990s technology boom. (41:48)
- In 1993, the wireless industry had only 34 million cell phones, with 70% of 20-year-olds owning cell phones compared to just 5% of 60-year-olds, demonstrating how younger demographics drive technology adoption. (32:54)
- Prior to frozen foods becoming widespread, 40% of the US labor force worked on farms and food represented over 25% of household spending, compared to just 2% in farming and 5-6% food spending today. (37:39)
