Still fuel in the tank for a rally... retail investors still on sidelines, potentially creating upside for $IGV #ETH #BTC $MAGS and $IWM.

Equity markets continue to have positive follow through after reaching all-time highs. This is positive and for reasons we highlight below, we believe there is still "fuel in the tank." Despite the unexpected turmoil created by the Iran war, our stylized 2026 road map remains intact -- we see S&P 500 rising towards 7,300 before correcting and a year-end target of 7,700 or better.

  • Yes, we believe there is still a lot of "fuel in the tank" for a rally. As we noted earlier this week, we believe retail investors are caught offsides on this V-shaped rally. The S&P 500 is up 11% in 12 days. The two best measures of this are:
    - ICI data shows retail investors continued to raise cash for basically the last 6 weeks, no dip buying
    - AAII (retail sentiment survey) shows % bulls less bears stands at -11, still net bearish and even more bearish than the -7 reading the week prior.
  • By contrast, we believe institutional investors caught this V-shape rally more correctly. This is evident in our conversations with our clients in recent days. Many were adding since mid-March and essentially "legging into the low."
  • To us, this is really surprising as pullbacks since 2020 saw the opposite dynamic. Since 2020:
    - retail investors were typically legging into the low
    - while institutions were sellers until "all clear" was signaled.
  • We will never really know the full reasons for this, but my guess for why this happened is the following:
    - prior to the war, retail was aggressively buying software on the dip
    - evidenced by huge ETF inflows into $IGV
    - prior to war, retail was also buying the AI dip
    - so retail was caught offsides by the invasion
    - many investors view Trump as unpredictable
    - and thus "see the worst" in his actions
    - taken together, the Iran war was the tipping point to flip retail bearish
  • In other words, the start of the war fueled a maximum pain moment of:
    - retail having too much $IGV, $MAGS, AI stocks
    - fearing Trump actions
    - surge in oil added to misery
  • In any case, this is our guess and the cash on the sidelines represents future buying power. And this is a reason we believe stocks can still gain from here.
  • Of course, we are still in the midst of the "fog of war" and this means the path to the end of the war is not entirely clear. Today, President Trump tweeted on Truthsocial.com that Israel and Lebanon have agreed to a ceasefire:
    "I just had excellent conversations with the Highly Respected President Joseph Aoun, of Lebanon, and Prime Minister Bibi Netanyahu, of Israel. These two Leaders have agreed that in order to achieve PEACE between their Countries, they will formally begin a 10 Day CEASEFIRE at 5 P.M."
  • Data collected by Jinsa.com shows that the number of drone and missile attacks by Iran to its neighbors has dwindled to single digits in the last 8 days, compared to hundreds daily prior to the cease fire. That is a good sign.
  • The number of large vessels transiting through the Strait of Hormuz has not yet recovered. But that is not entirely surprising. And the recovery there will likely be a steep step function once a permanent solution is reached. Unless, of course, the war continues on.
  • There will be negative shocks ahead as global supplies of oil and key commodities remain disrupted. But if the war reaches an end, investors arguably will view those as "temporary shocks" and see through those disruptions.
  • Earnings season is underway and so far so good. The outlooks have not been as damaging as many feared. And in fact, overall earnings estimates have been going up.
  • This week marks the start of the 1Q26 Earnings season, with major banks to start reporting on Monday:
    - 4/13 Mon: 1Q26 Earnings Season Starts
    - 4/13 Mon 10:00 AM ET: Mar Existing Home Sales 4m vs 4me
    - 4/14 Tue 6:00 AM ET: Mar Small Business Optimism Survey 95.8 vs 97.9e
    - 4/14 Tue 8:30 AM ET: Mar Core PPI MoM 0.09% vs 0.45%e
    - 4/15 Wed 8:30 AM ET: Apr Empire Manufacturing Survey 11.0 vs 0.0e
    - 4/15 Wed 10:00 AM ET: Apr NAHB Housing Market Index 34 vs 37e
    - 4/15 Wed 2:00 PM ET: Apr Fed Releases Beige Book
    - 4/15 Wed 4:00 PM ET: Feb Net TIC Flows $185b
    - 4/16 Thu 8:30 AM ET: Apr Philly Fed Business Outlook 26.7 vs 10.0e
  • Next week there are some Fed Survey data releases along with some Preliminary PMI Releases:
    - 4/21 Tue 8:30 AM ET: Mar Retail Sales 1.2%e
    - 4/23 Thu: Market Update & Top Stock Ideas Webinar
    - 4/23 Thu 8:30 AM ET: Mar Chicago Fed Nat Activity Index
    - 4/23 Thu 9:45 AM ET: Apr P S&P Global Manufacturing PMI
    - 4/23 Thu 9:45 AM ET: Apr P S&P Global Services PMI
    - 4/23 Thu 11:00 AM ET: Apr Kansas City Fed Manufacturing Survey
    - 4/24 Fri 10:00 AM ET: Apr F U. Mich. 1yr Inf Exp
checkout-thomas-lee image
checkout-logo image

Become a Member To Access Fundstrat Research

Fundstrat Direct gives individual investors access to Tom Lee's research, previously only available to banks and hedge funds.

Monthly

$199/mo

First Month Free

Join Now

Annual

-15% $2,028/yr

List Price $2,388

Savings: $360/yr

Join Now

Why Join Fundstrat Direct?

Fundstrat Direct helps you invest confidently with the same research banks and hedge funds use to navigate the market.

Daily Strategy Icon

Daily Strategy from Tom Lee & Team

Stay ahead of consensus with daily updates on key developments & catalysts and opportunities ahead.

Real-Time Market Alerts Icon

Real-Time Market Alerts

Analysis on market-moving events and actionable opportunities delivered instantly from us to you.

Curated Stock Lists Icon

Curated Stock Lists

Choose the portfolio that best suits your investment style, preferred asset class, and time horizon.

Monthly Market Update & Top Ideas Webinar Icon

Monthly Market Update & Top Ideas Webinar

Attend engaging webinars with Tom & team featuring our top ideas and near-term market outlook.

Daily Technical Strategy Icon

Daily Technical Strategy

Receive tactical opportunities, actionable signals, and fundamental analysis from our proven research team.

Live Analysis on Your Holdings Icon

Live Analysis on Your Holdings

A monthly webinar featuring live analysis on member-submitted stocks and questions.

More from the author

Disclosures (show)

Events

Trending tickers in our research