Fundstrat's Tom Lee Says 2026 Will Bring 'Joy, Depression, And Rally,' Backing Small Caps As Winners - Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), Vanguard S&P 500 ETF (ARCA:VOO)

Core Viewpoint - Tom Lee predicts the S&P 500 will reach 7,700 by the end of 2026, with a potential 15-20% correction in the latter half of the year [2][3] Market Performance - The market in 2026 is expected to experience volatility characterized by "joy, depression, and rally," influenced by the Federal Reserve's rate policies [3] - Factors contributing to market optimism include the anniversary of tariffs, anticipated Fed rate cuts, and a possible rebound in the ISM index [3] Sector Analysis - Sectors such as energy, financials, and small caps are identified as potential growth areas, with small caps having reached an all-time high in 2025 [4] - Lower interest rates are expected to benefit small caps, with monetary easing and earnings growth acting as tailwinds [4] Broader Market Outlook - Predictions align with a broader market outlook for 2026, emphasizing the importance of stocks with strong earnings growth [5] - Small caps are anticipated to outperform mid and large caps, supported by improving earnings momentum and favorable economic conditions [6] Recent Market Performance - Over the past year, Invesco QQQ Trust and Vanguard S&P 500 ETF have seen increases of 16.89% and 14.74%, respectively [7]