This Wall Street Veteran Says the Market Has Bottomed — Here’s What He Thinks Comes Next

By Joey Frenette Updated Apr 15, 3:15PM EDT · Published Apr 14, 8:47AM EDT

Quick Read

State Street Energy Sector SPDR ETF (XLE) has declined 9% from its high and yields 2.5% while up 25% year-to-date; State Street Materials Select Sector SPDR ETF (XLB) trades at 27.2x trailing P/E with a 1.75% yield and shows early signs of strength.
Tom Lee’s bullish calls proved accurate as the S&P 500 gained 8.6% from late-March lows.

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This Wall Street Veteran Says the Market Has Bottomed — Here’s What He Thinks Comes Next — © Bigc Studio / Shutterstock.com

While the Dow slides into correction territory and the “fear gauge” flashes red, the loudest voice on Wall Street is also the calmest. Fundstrat’s Tom Lee—the man who defied the recession doomsayers to correctly predict the 2023 bull run—isn’t flinching. In fact, he’s raising the stakes.

Lee recently issued a bold 7,700 year-end target for the S&P 500, punctuated by a “bottom call” in late March that has already proven prophetic. Since that call, the S&P has clawed back 5%, proving once again that betting against Lee’s data-driven optimism is a losing man’s game.

But Lee isn’t just chasing the AI-fueled “Magnificent Seven.” He is eyeing a “Great Rotation” into the unloved corners of the market: Energy and Materials.

The “Catch-Up” Trade

The logic is simple: while Big Tech has done the heavy lifting, sectors like Energy and Materials are “getting off the canvas.” With the Strait of Hormuz seeing renewed tension and global supply chains tightening, these “old economy” sectors are no longer just value plays—they are growth engines.

For Tom Lee’s top sector picks, I think the State Street Energy Sector SPDR ETF (NYSEARCA:XLE) and State Street Materials Select Sector SPDR ETF (NYSEARCA:XLB) are the ways to go for low-cost exposure to the two intriguing sectors highlighted by Lee.

With the State Street Energy Sector SPDR ETF plunging close to 9% from its high, I think there’s a decent entry point to step in as a contrarian. You’re getting a yield of around 2.5% alongside still-solid year-to-date strength (up 25%), with some of the proven large-cap winners that can help further one’s diversification.

The State Street Materials Select Sector SPDR ETF also looks quite solid, especially for investors looking to play a mean reversion to the upside. Like with energy, the basic materials sector is only just starting to show signs of strength.

If this is the big breakout that’s years in the making, I wouldn’t look past the State Street Materials Select Sector SPDR ETF while the yield, currently at 1.75%, is still decent and the price of admission (27.2 times trailing price-to-earnings) is reasonable, given the potential growth tailwinds ahead.

About the Author Joey Frenette →

Joey is a 24/7 Wall St. contributor and seasoned investment writer whose work can also be found in publications such as The Motley Fool and TipRanks. Holding a B.A.Sc in Computer Engineering from the University of British Columbia (UBC), Joey has leveraged his technical background to provide insightful stock analyses to readers.

Joey's investment philosophy is heavily influenced by Warren Buffett's value investing principles. As a dedicated Buffett disciple, Joey is committed to unearthing value in the tech sector and beyond.