Tom Lee's *NEW WARNING* for Stocks in September

In the past 12 hours, Tom Lee went on CNBC and said the remainder of August is going to be strong for the stock market, but he did give us a warning for September heading into the midterms. In this video, I will obviously share with you what Tom Lee just said. It's about 5 minutes long, but then I will share with you my perspective on the markets in September and really throughout the rest of this year. Where do you want to be buying the dip in if we get a dip? Where is the opportunity for the next 12 24 months? What am I doing in my portfolio right now? And my portfolio in the trading community, this is the one that we track and I I share opportunity to find value before Wall Street figures out the opportunity. The link is down below in the description of today's episode. But neither here or there. The portfolio is up over 100% year to date. Not using options. Like this is not an options trading portfolio. This is equities, stocks. We are picking stocks in this. So what am I doing? What do I think makes sense to do with these kind of gains? I know a lot of you guys are also in a similar position. So I think you can find some value out of that. Ladies and gentlemen, if you cannot tell, we have another banger for you guys today. Do me a quick favor and hit that like button for the YouTube algorithm to help push this video out to more people that need to see it so they can also make money from it. Consider subscribing to the channel if you guys want to beat the markets and have a better insight to what's happening in the markets every day and more importantly what is going to happen. So first things first, I want to share with you what Tom Lee said about the remainder of August and volatility that we are likely to get in September. Take a listen. we go from here. We're back now that Nvidia earnings out of the way. What does it mean for stocks the weeks ahead? Let's welcome in Tom Lee. He is Fund Strat's managing partner, head of research, also a CNBC contributor. It's good to have you back. >> Great to see you. >> I said at the very top of the show, it's kind of peculiar the market reaction to this today. Nvidia is having a great day, but it's kind of mixed elsewhere. What do you make of that? >> Um, I mean, I think it's a healthy market, Scott, because Nvidia had good numbers. So, you want um Nvidia to go up on good news, which it did. It's having >> which it rarely does. >> Yeah. And it's rare. So it's breaking a pattern of people thinking people don't care about the earnings. It really did matter. And I think that we are seeing a positive response in software which of course is on good numbers and there and those names are downstream of the AI trade. So I I think it's actually an overall healthy reaction. >> I know but the the software moves are so specifically related really to what we got from Salesforce and Crowdstrike and Opta Octa and others. I find it interesting that Meta's down, Amazon's down, Alphabet's down, AMD's down, Micron's down, Marvel's down, Cororee's down. I wouldn't have expected that after Nvidia delivered what they did. >> Yeah. I mean, it's also possible people were using those names and not having exposure to Nvidia. So, they've got to find a source of funding if they have been underweight Nvidia. And again, I've heard it from many guests on CNBC. The thing that stands out is Nvidia's multiple is still very low. So, they have got these huge revisions. The stock hasn't kept up. Now the PE keeps contracting. >> Yeah. So where is your overall market take right now? We're not that far from the end of the year, believe it or not. >> Are you still looking for a a meaningful correction before another ramp up or does this report from Nvidia do something to take that off the table? >> Um well I think August is going to still end on a very strong note. So this week was our thoughts. It was a clearing week. The third of that clearing event is tomorrow with Kevin Walsh, which I think the market should react positively, just like last year, the S&P rallied more than 4% right after his speech. And then I think once we get to that 7,900, 8,000 on the S&P, I think that's a good pause point because then we think there's midterms uh elections. There's the whole movement in the yields, there's the prosecution of this war that's continuing and the and the oil pressures, and then there's supply and lock. So, I think there's things that the market has to sort of digest along with margin debt, and I think that's going to be this the source of a correction after this month. >> What about the data center debate? Speaking of the midterms, that it's only going to grow louder as you approach election day. Now, we're still a few months away from that. >> Yeah. >> But that feels like it's at play here, too. And why the market and those specific names just haven't traded all that well lately. >> That's right. It's becoming a actually a an issue that resonates with voters and it looks like it's turned already some elections like in Ohio and then we're seeing governors in Republican states and pro data center states, you know, supporting a pause. So, you're absolutely right. It's become a political issue. I don't know if this is also maybe fueled by China which wants the US to slow down its AI efforts but you're right it's it's becoming an issue and that's probably why the downstream trades are doing better the AI downstream trades >> what what about outside of tech and and AI have you take your lens you know in in in that direction what what do you see that you like >> uh well we there's still a lot to like because we know it's been a good earning season actually one of the standouts has been small caps so I think small caps continue their leadership because they they're in the process of rerating relative to large caps. Uh we like industrials and financials and I think crypto has a lot of catalysts in the fourth quarter. So a lot of investors missed the crypto trade. You know so far in the third quarter best performing asset is crypto. Ethereum up 54%. If that continues in the fourth quarter there's going to be a big FOMO rotation into that. Lucy, if you think that yields are going to remain elevated and are a risk to the market in general, certainly on your list of possible risks, >> isn't that a problem for the the small cap trade? >> Uh >> because you see it pretty correlated. >> Yes. >> Rates go up, Russell goes down, rates go down, Russell goes up. Rates are I mean, they're up a little bit. Russell's up a little bit. >> Yeah. It's a you know, it's there's a little dissection. If if rates are going up because risk premium is going up, then that's bad for small caps. If rates are going up because long-term growth rates repricing higher, that's bullish for small caps because that's a good M&A environment. >> Well, it's been great this year. 21% beats everything else. >> Yeah. >> So, good to have you here. Thanks. >> Tom Lee is still calling for a correction in the month of September. And right now is really a weird time because, you know, there's the select few people that are calling for a correction right now, but most people are pretty damn bullish. I mean, look at this clip from CNBC today. It says the risk for investors right now is being underinvested. I mean, you're you're seeing most people that are bulls right now. And don't get me wrong, it makes sense to be bullish right now. I am very optimistic for the stock market over the next 12 to 24 months, but I will agree with Tom Lee. We might have a problem in the month of September. Key word there, might. We may or may not. Now, let's break this down. There's really two ways you have to think about this and you have to look at your portfolio and understand how you are positioned. If you are a headline index investor, if your portfolio follows the NASDAQ or the S&P, then this is very important for you, and we'll talk about why in just a moment. On the other hand, if you're out there picking stocks, if you're in the new AI trade, which again is robotics, automation, AI software, and cyber security, your portfolio is probably not going to react the same kind of way as the headline indexes. And let me explain this. So, a lot of the fear right now is around the AI trade when it comes to the midterms. So, Texas Governor Greg Abbott issued a statewide sweeping pause on new AI data center approvals. Texas is one of the fastest growing data center states. That's a problem there. Basically, citizens don't support data centers. So that puts a lot of pressure on politicians to cater to them to pause, you know, data center approvals and to slow down AI. Well, if Democrats win the Senate, that could go even faster. In fact, Bank of America says that stocks would fall over 10% if Democrats take the Senate. But Bank of America paints this as a one brushstroke kind of thing. Not all stocks would fall on this. Yes, the indexes would probably fall because if you take a look at EPS growth for the S&P, you are sitting at 24.7%. That is wild. That's insane. Think about that. S&P 500 earnings are growing at almost 25%. That's ridiculous. Okay. Well, that is because of AI, semiconductors, and hardware. If you exclude just Nvidia and Micron, S&P 500 EPS growth, the year-over-year growth drops to 16.8%. If you exclude the Goldman Sachs, Morgan Stanley, GE, Veronova, and Eaton, these are your investment banks that are benefiting from underwriting the debt. And these are the companies GE, Veronova and Eaton that are actually benefiting from the AI buildout themselves from the energy perspective, data centers, blah blah blah. Well, excluding those companies, just a handful of companies, S&P 500 EPS growth drops to 12%. That is still really good. So excluding, you know, some of your AI tech, AI financials, AI industrials, you are still growing at 12%. That's the silver lining. Like it's still a really good environment historically for earnings growth, but what happens if it looks like Democrats are going to win the Senate? People are going to go, "Oh my gosh, this is going to slow down the AI boom." So, this is probably not going to be a problem for earnings growth this year. But the fear would be that earnings are going to slow down a lot for next year or the year after that or the year after that for that matter. Now, the silver lining is if if S&P 500 earnings growth slows down, funny enough, if you're picking the next big AI stocks like AI software and cyclicals, robotics or automation or just Joe Schmo company over here that's growing at, let's say, 30 or 40%. That company, that stock will likely do a lot better in the absence of broader market growth. companies specifically that are growing faster, most of the time, Wall Street will pay a premium for those. Think about it like this. If S&P 500 earnings growth in a theoretical world was 0%, no growth, that's not great. Headline indexes are not going to do very well on that. Most likely, you have this other company over here that's growing at 20%, that looks like they're benefiting from a lot of tailwinds and they have a bright future. that company growing at 20% might have a valuation that makes no sense at all because people want to own the growth stock. So yes, limiting the data center buildout potentially if Democrats continue to look like they're projected to win the Senate could pressure and will likely pressure the headline index, but it could actually benefit the other areas of the market. Now, initially in the month of September, if it looks like Democrats are going to win the Senate, that might pressure the entire market. Seasonality, there's a lot of other moving parts in this market. You could get a broader market sell-off, but the recovery would be asymmetrical in the faster growing areas. Again, I like the new AI trade. I think robotics, automation, AI software and cyber security. These are, as Tom Lee said, further down the AI chain. These are the companies that benefit from actual adoption of AI. Like average businesses that adopt AI, AI software is going to benefit. Cyber security is going to benefit. Automation plays like a UiPath or a Zebra that's literally catered to average businesses, they're going to benefit. robotics are just going to benefit because that's that's where we're going. Something like a Tesla, right? Optimus, humanoids. So, you can't really look at this market and say, "Oh my gosh, if the Democrats win the Senate, that's bad for everyone." That's actually not bad for everyone. That's bad for the headline index. That's bad for AI hardware specifically, but the down thechain AI plays could actually benefit if the growth is projected to slow from the top of the chain. People are going to move down the ecosystem. But again, initially, it would like it could I don't want to say it's likely, but it could be a negative for the entire markets. Typically, if you're going through like a run-of-the-mill correction or even a crash in the markets, everything tends to fall. Now, I don't know if that's going to happen. There's another big piece of the puzzle here. It is the Iran war. So, you have the midterms and this fear around the AI buildout slowing down and that's going to ramp up in the month of September and October, right? The fear is very early there. I think there's going to be more fear about the AI buildout being restricted from a politic perspective. Okay. The other side of this is what happens with the Iran war. Both of these are big nearterm potential positives or negatives. If the Iran war gets worse and does not end, that's going to be a bigger problem for the markets, for the broader markets. If the Iran war ends in September or October, you are going to have a violent rally on your hands, at least in the broad market, because that's going to lower oil prices. That's going to lower inflation expectations. That is going to me mean no rate hikes from the Fed, stronger economy, stronger consumer. It's going to potentially prop up EPS growth expectations for the broader market. EPS growth expectations for AI hardware stocks, they're probably not going to go up if the Iran war ends. But what about cyclicals? What about nonAI industrials? What about regional banks and smaller financials? They're going to do a lot better in a lower interest rate environment or at least a stable environment where we're not expecting rate hikes. So, I do think this is one of those weird moments in the markets where if you understand the markets and you're watching videos like these that I put out on the channel, you are going to be in a crazy good position to benefit from knowing this information. But if you're someone that's not really in tune with the markets, you're kind of just reading the headlines and you're not digging through these different, you know, pieces of the puzzle here, you're going to get left behind in the next 12 to 24 months. Now, also a little bit more good news for the broadening trade, the gap between the earnings growth that AI hardware is putting up versus the rest of the markets is going to narrow next year. So for full year 2026, you're expecting a 14% delta here, right? So you're expecting around 16% um earnings growth for the broader markets this year. You're expecting 30% growth including the AI hardware stocks. So the median stock at 16% including AI hardware at 30% growth this year. For next year, you're expecting the headline indexes to grow earnings 13 to 15%, including AI stocks, but the average stock is expected to grow earnings 11 to 12%. That's only a 2% delta. So, that likely does help to fuel a broadening trade. But again, in the month of September, if it looks like Democrats are going to win the Senate and there's going to be more backlash in the AI buildout, you might actually see like again the average company is expected to grow 11 to 12%. I don't think the AI buildout slowing down is going to change that. But you might actually see AI hardware stocks, their projected EPS growth to actually go lower than 11 to 12%. In that environment, the broadening trade really picks up some steam next year. Now look, I don't know exactly what's going to happen. I'm modeling different forecasts here. We don't know what's going to happen, but I do think there is a positive any which way you want to put it for the down the down the pipe AI trades and the broadening trade. I think there's there's a lot that that you know leads me to like the broadening trade and the you know robotics and automation, AI software and cyber security. Now then again, if you look at the average S&P per S&P 500 performance, the 12 months before a midterm election, you tend to trend lower September tends to be a really rough month. We all know that. But starting around October, around early October, maybe midocctober some years. You start the rally, this rally is basically vertical for 9 to 10 months. The question is, or really what you need to figure out right now is how do you position into areas that are going to, you know, go up more than others in this rally. You don't want to have a weak performing stock during this rally. You want to find the stock that's going to double or triple during this 10-month rally. Now, last but not least here, what am I doing in my portfolio? I will tell you, it is not financial advice. This is not a recommendation. And do not listen to anything I say and do not trade based off of anything I say. This is the portfolio again in the trading community where I like to highlight and point out opportunities potentially that I am taking advantage of. I document what I'm buying, what I'm selling, what I'm trading. There's a Discord over there. I'm also posting all of the trades on on Patreon. If you guys want to come join that, by all means, have a ball. Okay, we are up 103.65% year to date. Over 100% yearto date. We are outperforming every other hedge fund or institution on Wall Street. The the sec the the best performing hedge fund is up 72% yearto date. We are smashing them. Okay. And I know a lot of you guys also have portfolios that are up a lot as well. So what am I doing right now? Well, Stanley Duncan Miller, I believe it's Stanley uh Jun Miller once said, if you own a stock, you are actively buying it every day. if like if you continue to own a stock, you have to be comfortable with where the price is. Basically, that's that's what he said. Well, I sold one stock recently, it was ELF. Why? Because when I was buying it in the 40s and 50s recently, in the last 3 months, I thought there was an asymmetrical opportunity. I thought at a 1.2x peg with the opportunity ahead of ELF, it was a no-brainer buy. Now that the stock is 110 or so, I think that Wall Street has mostly figured out the opportunity. So the PEG was 2.5. I'm buying stocks with PEG ratios of 0.5. I had to sell ELF. I did not have a choice. I could not justify buying it in the 110s. Okay, at least in the near term. Long-term, again, have a ball. I think ELF would do great. and I plan on owning it one day if the markets turn on it again. Right? Phenomenal company. But I think that's what you want to do right now. If you do have big positions with big gains and you can't justify buying more at current prices, it is probably time to reduce exposure in that position. Now, on top of that, I'm not really selling any other stocks, but I do think selling covered calls tactically here over the next 30 days could make sense. you can always roll them over and get out of them. That's not a recommendation, not financial advice. Of course, that's kind of what I'm looking at doing in my portfolio for the next 30 days. So, I don't think this is when you want to be rushing out and buying a ton of puts on the markets. Like, I I I don't think this is the moment for that. Although, hey, we'll see. 30 days from now, maybe that was the best move ever. I don't know. I'm kind of holding tight here, re-evaluating my portfolio heading into the end of this year and redeploying capital into better opportunities. If you guys want to come trade and invest alongside of us or at least see the opportunities that are out there, again, not a recommendation, not financial advice. Do not buy, sell, trade anything. I will never tell you to buy, sell, or trade anything. That link is down below in the description of today's episode. But ladies and gentlemen, that is going to do it for today's video. Hit that like button. Subscribe to the channel if you guys have not done so already.