Stocks tanked following the Federal Reserve’s disappointing rate outlook Wednesday, but Tom Lee says investors need not worry. Equities spiraled downwards after the U.S. central bank’s revamped outlook for 2025 showed more hawkish sentiment in the form of two fewer rate interest rate cuts than had previously been expected. “But to us, this panicked reaction will be short lived,” wrote Tom Lee, Fundstrat Global Advisors’ head of research. “This was a painful day, but the fundamentals did not change. This is why we see this as a ‘back up the truck’ moment.” Lee highlighted several reasons why the equity market downturn will prove short-lived. He noticed that the CBOE Volatility Index spiked 74% on Wednesday, its second highest advance on record. Historically, stocks have made a full recovery within a month of all four of the CBOE Volatility Index’s four largest spikes, Lee said. @VX.1 1M mountain VIX volatility index over past month. The S & P 500 is also testing its 50-day moving average, where it rallied in 2024, Lee added. He also noted that despite the Fed’s hawkish commentary, investors have decided that the U.S. central bank is ultimately still dovish, albeit with less “visibility” heading into the new year. “In other words, the Fed remains supportive of markets,” Lee wrote. “We see this more as the Fed wanting to ‘take it slower.'” Against these secular themes, Lee believes that small- and mid-cap stocks are best positioned as potential beneficiaries. Specifically, he highlighted regional bank BancFirst , music streaming platform Spotify , online used car market Carvana and burger chain Shake Shack as attractive names.
