Fundstrat's Tom Lee Sees Market Bottom in VIX Signal After S&P 500 Rally

Tom Lee believes Monday’s 2.3% advance in the S&P 500 supports his view that the decline last week marked a trough. The Fundstrat managing partner pointed to a turnaround in Wall Street’s volatility indicators as evidence.

The assessment matters for investors in artificial intelligence and large-cap technology stocks, which bore the brunt of last week's losses. Yet Kevin Gordon, head of macro research at Schwab, cautioned that a single strong session does not confirm a bottom.

What Makes the VIX a Bottom Indicator for Tom Lee?

Lee referenced the Cboe Volatility Index (VIX), often called Wall Street's fear gauge. Its term structure — comparing four-month and one-month readings — inverted last week before returning to normal on Monday.

According to Lee, that normalization typically signals a bottom. He also viewed the rally, which occurred despite negative weekend news, as a healthy development.

Nvidia (NVDA) dropped roughly 4% after its board initiated a probe into CEO Jensen Huang's acknowledged affair. The S&P 500 closed at 7,549.94, marking its strongest day since April.

Lee had previously urged investors to buy the AI dip last week. Speaking on CNBC, he summarized his outlook.

“I think markets are a lot safer than people think.”

Tom Lee, managing partner and head of research at Fundstrat, speaking on CNBC

Does Market Breadth Support the Recovery?

Gordon contends that the more telling signal lies beneath the headline index. The equal-weighted S&P 500, where each company carries the same weight, outperformed the market-cap-weighted version throughout last week's downturn.

By Friday, nearly 60% of index members remained above their 200-day moving averages, he noted. He added that the pressure was concentrated on leveraged technology bets made before the midterm elections.

Meanwhile, Chris Hyzy, chief investment officer at Bank of America Private Bank, saw strength in financial stocks. He stated that their performance points toward future deal activity and sustainable lending margins.

Gordon observed that large-cap tech stocks dominate the index so heavily that a cap-weighted rally reveals little about the average stock. Inflation data due this week could challenge the rebound, and a renewed VIX inversion would undermine Lee's interpretation.