There's 'excessive pessimism' in the markets, says Fundstrat's Tom Lee

• Softer jobs report and upcoming inflation data suggest easing inflationary pressures, allowing the Fed to 'walk back from its hawkishness'.
• Bond yields are expected to normalize, with the 10-year potentially falling below 5% in the next six months, which would be positive for 'risk on' assets.
• Earnings growth is accelerating (Q3 possibly up 30%), and EPS revisions for 2027 are up over 20%, making the S&P 500's valuation 'cheaper' despite its year-to-date gains.
• Tech stocks and crypto performing well indicate anticipation of easier financial conditions, and midterms are viewed as a 'risk-on signal' for markets, potentially benefiting AI stocks and crypto.

Fundstrat's Tom Lee maintains a bullish outlook, expecting inflation to ease and the Fed to become less hawkish. He anticipates bond yields to normalize below 5% and the S&P 500 to see further gains by year-end, driven by accelerating earnings and a market that has become 'cheaper' despite recent rallies. Midterm elections are seen as a 'clearing event' for a risk-on rally.