Margins are improving despite tariffs, says Fundstrat's Tom Lee

Market Sentiment - The current market sentiment is characterized as the "most hated rally," with a significant portion of high net worth retail investors showing negative returns of -11.7% year-to-date [2][3] - Historical context indicates that similar negative sentiment has only occurred three times in the past 35 years, correlating with bear markets in 1990 and 2022 [3] Fund Manager Performance - Approximately 80% of fund managers are trailing their respective benchmarks this year, marking the worst performance in nearly 25 years [4] - This underperformance may lead to a year-end chase as fund managers realize the implications of not being engaged in the market [4] Earnings and Profit Margins - Companies are experiencing improved profit margins despite tariff challenges, attributed to the utilization of AI technologies [5][6] - The fading tariff headwinds combined with the benefits from AI are expected to continue driving margin growth [6] Federal Reserve Outlook - Fed fund futures still project a potential rate cut in December, despite recent statements from Fed Chair Powell suggesting a less certain outlook [7][9] - Inflation is reportedly declining, with 54% of CPI components showing outright deflation, indicating a potential for further rate cuts [8] Economic Conditions - The ongoing government shutdown is contributing to economic slowdowns, including impacts on air traffic, which may further weaken inflation [11] - The labor market is also showing signs of weakness, supporting the argument for potential rate cuts in the near future [11]