Tom Lee: What 2026 Could Mean for Your Portfolio?

what 2026 will hold for your money.

Let's ask our panel, everyone here at Post 9 today. Funst strats Tom Lee, Eye Tower Stephanie Link and CIBC Capital Markets Chris Harvey. Tom and Steph, both CNBC contributors, one and all.

It's good to have you right in front of us on the desk today. All right, Tom. So

2023 we turned in 24%. 2024 we turned in 23%. Pretty good this year, too. 17%.

23%. Pretty good this year, too. 17%.

next year we fill in the blank with what sounds reasonable to you.

>> Um I think it's still possible to have a double digit year. There have been 12 times in the last 100 years where markets posted three years of 20% gains.

This year hasn't finished yet. Um

globally half the time markets do even better in the following year. So I think next year is a year where the debate's going to be is the bull cycle over or is it going to extend? I think it's going

to create quite a lot of volatility in the first half, but I think GDP growth stronger. We have a dovish Fed.

stronger. We have a dovish Fed.

Valuations are reasonable. So, I think we end up exiting very strong.

>> Why a lot of volatility in the first half then?

>> Uh part of it is um the Trump tariffs could get overturned. There is a possibility of an extended government shutdown. The nomination and then

shutdown. The nomination and then confirmation of a a new Fed chair is going to take three months. That's could

be very controversial. I think all of that happens in the first half of next year.

>> How's that sound to you, Steph?

>> I mean, I sound I think that sounds really great. The economy is on solid

really great. The economy is on solid footing. We've been talking about that

footing. We've been talking about that all year long. Last week, we've got some really encouraging data with regards to weekly jobless claims. Inflation came in a little bit better. We've talked about

the H8 Federal Reserve lo loan growth lending. That's actually at a 9-week

lending. That's actually at a 9-week high, all-time high for loan growth.

That's very bullish for activity overall. The industrial metals are at

overall. The industrial metals are at all-time highs and you have a global central bankers including the Fed getting more and more closer to the neutral rate. That's a good thing. And

neutral rate. That's a good thing. And

Fed cuts take a while. There's a lag impact and I think that's going to bode well forward next year. And then you have the one big beautiful bill$1 150 to$1 175 billion going into the consumer's hands going into corporate

America. So capex continues. You add it

America. So capex continues. You add it all up and I think you have doubledigit earnings growth. There are some numbers

earnings growth. There are some numbers out there that are a little high like 16 17% in earnings growth. I'm not there, but I do think you're going to see low teens.

>> Mr. Harvey, >> I think high single digits is reasonable. Um,

reasonable. Um, >> single >> single single I can't get to 10% 12% 15 just yet. Right. One of the things that

just yet. Right. One of the things that Tom said I agree with wholeheartedly.

The first half you're going to see a lot more volatility than you have seen in a while. I think people are sleeping on

while. I think people are sleeping on the macro risk. Be it USMCA, be it the transition with the Fed. If you listen to Powell now, he wasn't cocky about this. He was he was very humble but

this. He was he was very humble but basically what he said is I'll see it I'll see you at the book signing we have growth higher we have inflation lower we're back to neutral we don't need to

do anything from here and 6 months if you don't cut rates for another 6 months that's an eternity in the financial markets and then the last thing is I think corporations are going to man

after a good year this year they're going to manage down expectations as you manage down expectations that puts a little volatility into the marketplace and lastly risk is priced

very very expensively either in the equity markets or the credit markets doesn't take much to upset the Apple card.

>> You want to respond to that because it seems like uh if not a stepbystep counter in some respects to your view it certainly is enough of one. I mean

there's going to be more volatility the we're underestimating maybe too complacent about macro risks that are out there among other things. What do

you say? I mean, I feel good about the macro environment, all the things I just said, and I think it is a consumer that has been resilient. We've been talking about the consumer forever, how they have hung in there. Yes, it's the

high-end, not the low end. That tends to be the case on a on a regular basis, unfortunately. I don't think the AI

unfortunately. I don't think the AI infrastructure capex uh cycle is going to change in 2026. And that's fueling about 3/4 of the GDP growth. And I do

think that that we always have a wall of worry. And I've said it, you've heard me

worry. And I've said it, you've heard me say it, Scott. I worry when I don't worry because that means that we're complacent. I think there's a lot to

complacent. I think there's a lot to that that people have on their minds. I

think we're going to be able to get through it because fundamentals at the end of the day, they run the show. And

if you do have an economy that grows 2 and a half, 3%, we're growing north of that now. But if you have an economy

that now. But if you have an economy that's growing 2 and a half, 3%, typically that's been a 10% earnings growth. And I think we're going to be a

growth. And I think we're going to be a little bit more. And you have lower interest rates, by the way. You have

lower gasoline prices. You have lower egg prices. Let's address the valuation

egg prices. Let's address the valuation issue that stocks are you you want to go there?

>> It's all about earnings though. It's if

I think double digit if earnings are growing in double digits then I do think the valuations are very attract especially in other sectors beyond tech.

>> Yeah. And we have to keep in mind the equal weight S&P 500 PE is 17 times.

>> It's lower than it was 5 years ago. So

the market actually has derated in the last five years because of these black swans of the shutdown, inflation surge, fastest Fed hikes in history, etc. So

actually the the equal weighted market is is cheaper. I don't think I don't think risk is actually that expensive.

>> Listen, so let's turn it to small caps for a second and just talk about risk.

>> There's two indices for small caps.

Russell 2000, S&P 600. both small cap they should perform pretty much in line with each other. Russell 2000's

outperforming by 8% this year. Russell

2000 outperforming by 8% but because S&P 600 is a high quality index the things that don't earn money the things that have excessive beta all really driving

that marketplace. So I see if you look

that marketplace. So I see if you look at IG credit spreads less than 80 basis points. If you don't know that market

points. If you don't know that market that is tight tight right? If you look at the is it the the S&P high beta index, it's up 35% 34 35% double of what

the S&P is. I I see a lot of I see a lot of froth, right? There's a price for risk. It's here. I think the price for

risk. It's here. I think the price for risk is down here.

>> Interesting. I mean it is one of the key questions no doubt is is whether the broadening story that we've been talking about has legs and how what do you need to reach some of

the loftiest targets from from strategists that are out there. I mean

the top one's 8100 Dom Chu joins us now.

I mean it's a nice range Dom but 81's the top as you show right there.

>> Yeah that's right. 81's the top. That's

John Stalfus over at over at Oppenheimer right now. So that implies a pretty

right now. So that implies a pretty decent size gain and the lowest is still bullish only about maybe four or 5% higher than current levels right now.

But that's Sevita Supermanian over at Bank of America. So 7100's the low end of the 15 strategies that we've surveyed here at CNBC. 8100 is the high end. The

middle 7629 actually implies upside of just about 10% or so from the current levels that we're at right now. So,

generally speaking, we could get to, if we get to the average target price, a double-digit gain for the S&P 500 by the end of next year. As for whether or not we can see the contributors for that

move higher, yes, it's always been about MAG 7, but these days, we're seeing a little bit more relative strength in other parts of the market that imply maybe a broadening out trade. Check out

the small cap ETF, which is already up 21% on a year-to- date basis. The

midcaps are up about 11.5%.

underperforming though the S&P 500 at 15. So the small caps getting some legs

15. So the small caps getting some legs and some steam that could bode well for the broadening out trade. As for the sectors that could be interesting here as well, check some of these out because over the last 3 months it has been

healthc care, financials, and industrials that have been among the star performers on a three-month basis.

So do they carry some relative strength or momentum over the last three months into the early part of 2026? That's

going to be key as well. As for some of the individual industries that are leading the way higher, speaking of the broadening out trade, the XME is the Spider Metals and Mining ETF. That's

already up about 89% so far just this year. The ITA's aerospace and defense,

year. The ITA's aerospace and defense, which is 51% higher. And the NASDAQ biotech ETF has been a standout, up 30% so far. So, as we talk about the

so far. So, as we talk about the broadening out trade, some of the best performing industries and ETFs out there that track them are not tech or comm services related. They're other parts of

services related. They're other parts of the market. So, that's going to be a

the market. So, that's going to be a real key for that trade in 2026, Scott.

And by the way, for more on that story, just head over to cbc.com/pro.

Subscribers get all the context and detail around those big calls out there.

I'll send things back over to you, Scott.

>> Yeah, that was great stuff, Dom. I

appreciate you for that. That's Dominic

Chu. So, you've you've already had a good amount of broadening. The idea that the market hasn't been broad is a is a is a fallacy, really.

>> Uh, I mean, yes and no, because uh when you look at threeear stacked, it's still mag seven. And so I I think it makes

mag seven. And so I I think it makes sense to not just look at 2025 by itself, but how have stocks done since the end of 2022. To me, there's a lot of

room for cyclicals to really outperform, including financials, because the ISM's been below 50 now for almost 3 years.

That turns hopefully turns up above 50 next year, and we get a pretty I think what I consider a cyclical broadening of the market >> to to outperform tech.

>> Yes. and and Steph and I were talking about this that I think tech earnings visibility is still good but the the multiple expansion story isn't as doesn't have as much upside as

industrials or financials or energy or even basic materials.

>> It's funny cuz you just bought more meta.

>> I did >> like this morning or yesterday, right?

>> This morning. Yeah. Um I still like it very much. It's still down 6% from its

very much. It's still down 6% from its highs. I still think that they win from

highs. I still think that they win from AI and what it's going to mean for their ad business and for their messaging business and customer apps business. The

metaverse cost cuts are $5 billion in savings annualized gives you gives them $2 a share again annualized in earnings.

I think this company can actually deliver 36 to $38 a share by 2027. That

puts this thing at 18 times earnings and it's growing earnings at 20% and revenues at 26%. All that being said, so it's a big position top five. All that

being said, I am underweight. Other

mags, I really only own Amazon, very small Microsoft, but I do think that financials are going to be the sector leader next year because we're not pricing in on a valuation point of view.

we are not pricing in all the deregulation that is going to come and the excess capital that is going to be returned to shareholders and by the way lead to loan growth which is why I look

at the H8 data it's really important to see what banks are doing if the banks are lending that's going to h help the entire economy as a whole us grow and these stocks are not expensive capital

one is at a 12 times multiple you know even Morgan Stanley expensive right 17 times Bank of America 1.4 four times book. I think that there's a lot of

book. I think that there's a lot of runway left to the financials and that's the sector that you know I've been overweight for a long time and I continue to be.

>> You agree with that?

>> Um we like parts of the financial. We we

really like the financials about a year and a half ago now. We're just being a little bit more selective. I I agree with some of the broker dealers, some of the credit card companies, relatively cheap. Think there's some upside

cheap. Think there's some upside >> but not the big banks.

>> Um big banks are fine. Um I just don't think they're an overweight at this point in time, right? They performed

exceptionally well. Actually, JP

Morgan's out outperformed a big section of tech over the last three and five years. So, it's it's performed, right?

years. So, it's it's performed, right?

But why don't you why don't why wouldn't you be overweight that group? I mean, if you if you think that, you know, earnings are going to stay strong, the economy is going to be good, you're going to get more deals, you're going to

get more IPOs, all all of that deregulation and everything, >> that that feels reasonable to expect all of that.

>> It it's reasonable. I think a lot of it's in the price. I think they need to either pull back or consolidate. And if

they do either one of those, we'll take a look at them. But I agree with Stephanie. The deregulation story has

Stephanie. The deregulation story has more to play. But in the banks, I just don't think it's the right time to do it. They perform so well. Valuation is

it. They perform so well. Valuation is

fine. The underlying fundamentals is fine, but there's nothing undiscovered there where we're saying got to own the banks.

>> But we haven't had a net interest income cycle in about 10 years, and the steep yield curve will be very beneficial for that.

>> Yeah. I thought you talked about yields coming down.

>> We're seeing a steepening in the yield curve.

>> I know we are now, but I mean >> that's very positive.

>> Well, because the because the front end of the curve is coming down because on expectations of of rate cuts.

>> That's okay. I mean rates are coming down on the short end. Probably 10 years kind of sits here. Maybe it goes down a little bit. Um but I still think you're

little bit. Um but I still think you're going to see a steepening yield curve and that will help a big part of the bank's earnings which is almost 50 to 60% in some big banks cases. That's

their revenue generation. And so I think earnings estimates are going much higher and that's why I want to be overweight.

>> All right. Well, yeah.

>> I was I was just say just to add to Stephanie's point, I think tech forward banks that are using AI >> also are big margin stories because employee compensation is their biggest expense. I I think banks are going to

expense. I I think banks are going to look more like tech stocks in the future where they use AI to reduce employee dependency and earn the same money and their multiples go up.

>> All right. Well, speaking of AI, one of the critical questions is can we get past all the bubble banter talk? Uh well

bubble banter really kind of redundant if you say banter talk. Dear jerosa

joins us now with that critical question because we're obsessed with it now. I

wonder what early 26 is going to bring.

>> We're probably going to be obsessed with it for some time right Scott. I mean the AI trade for now at least in the last few days back on its feet but none of the big questions actually went anywhere. This data from someone gets at

anywhere. This data from someone gets at one of the most important questions in the whole trade. Open AI versus the Google AI universe. not just on models but across the stack and what each one represents. Now from January to November

represents. Now from January to November of this year, OpenAI gave up a little bit of market share. Google though grew its market share from about 6% to 15%.

This suggests that Google has some momentum and is finally converting distribution into real gains. Now it's

also quietly challenging Nvidia on the hardware side with its custom AI chips known as TPUs. And that could impact the entire cost structure, what we know of it today in the AI trade. Now, going

into next year, there will continue to be questions around whether OpenAI can meet its own ambitions and obligations while competing with an incumbent, Google, that controls the entire pipeline. Something else I want to

pipeline. Something else I want to mention, Scott, there's this really interesting debate going on at the very highest levels of AI right now. It's

playing out on X between Deep Minds Demis Hassabas at Google and Yan Lun, who just left Meta. These are two of the most prestigious people in AI. Habis is

arguing that today's scaled models they're already on a credible path to general AI while Lun is saying the current approach is a dead end without a new architecture. So if Habis is right

new architecture. So if Habis is right scale chips infrastructure those things keep winning but if Lun is right a lot of today's capex is going to look

premature and the payoff gets pushed out and that is really the central question on the bubble right can we justify all of this spending?

>> Yeah. Yeah. And I maybe we don't know the answer for a while. D, thank you.

Jar Jabosa, you know, Chris, you you say that the tech bubble does not pass our litmus test.

>> Yeah.

>> So again, it gets back to something like JP Morgan banks, which is outperfor. You

go back to late '9s and the banks really underperform here. The banks are

underperform here. The banks are actually leading the way. Multiples that

we're seeing still not excessively high.

You go back to late '9s, whether it's Oracle or Cisco, you're not seeing it.

More importantly, let's go to can you fund these risky endeavors. If you go to the credit markets, anything not named Oracle, you can go out and you can still fund. And so this market is still rather

fund. And so this market is still rather healthy. Valuations are not high enough

healthy. Valuations are not high enough at this level. We don't see the frothiness that we saw back then. And

the commercial aspect is so much better now than it was in the late '90s.

>> So you think the Oracle uh situation or issue or whatever is idiosyncratic to to itself?

>> That's what the market's telling you.

The market's telling you that Oracle is very idiosyncratic. If you look at the

very idiosyncratic. If you look at the credit spreads, if they came to the market, you'd be questioning how much can you bring to the market at what spreads. If anything else, any of the

spreads. If anything else, any of the other hyperscalers came to the market, the market would probably not really think about it and digest more or less anything that they they brought to the market.

>> You think we continue to have dispersion among these stocks? It, you know, yes, Alphabet is up 63% year-to date. Nvidia is up 37.

year-to date. Nvidia is up 37.

Microsoft is, you know, an underperformer slightly to the market as is Meta, as is Apple, as is Amazon. Does

this continue?

>> Uh, Scott, I'm going to say something.

It's not very popular, but I still think they trade as a basket because they do all have linkages to the same theme, but at different points of time, some will

lead versus the others. And so I have clients that do mean reversion among the mag seven, but I think that they're largely one complex.

>> Okay, >> I hope we get mean reversion in the names that I own because Meta obviously has a ways to go. But Amazon does too.

Out of all the Mag Sevens, that one to me has been the most surprising that it just can't get out of its own way.

>> Do you agree with what he said though that you're going to get back to trading like a group because the the stocks would suggest otherwise?

>> Yeah. No, I actually think that at any given point you have a couple of leaders and a couple of lagards and I think the I'm hoping I'm betting on that the fundamentals are strong enough in the

lagards that they will mean revert next year. That doesn't mean that Alphabet is

year. That doesn't mean that Alphabet is going to fall 50% but maybe it just trails for a little. Maybe it takes a pause. Same thing with Broadcom as you

pause. Same thing with Broadcom as you know I've said that before that maybe it just takes a pause because it has crushed Nvidia over the last year and that's okay. But the fundamentals are

that's okay. But the fundamentals are still very very strong, sound estimates are going higher. And when estimates go higher, no matter if these stocks take a pause, eventually the stock prices catch

up with the earnings revisions.

>> Last point to you, how how will these trade?

>> Um, we like the software space. We think

it's more selective. It's not over and we think the best risk award is in the software space.

>> All right, guys. Good holidays to everybody. Look forward to many

everybody. Look forward to many conversations in the new year. Thanks

for being here. Thanks.