There is credit market fear right now. But here's why stocks will still rally into year-end, says this bull.

By Jamie Chisholm

A rush by fund managers to boost portfolios will help take the S&P 500 to 7,000, says Tom Lee

The bull will continue to rum, according to Fundstrat.

Will it come to be known as the Cockroach Crash!? Jamie Dimon's comment this week that "when you see one cockroach, there are probably more," is a well-worn market aphorism, yet it seems to have heralded a burst of angst about the financial system's credit exposure.

The JPMorgan (JPM) boss was alluding to the recent bankruptcies of auto-parts supplier First Brands and subprime auto lender Tricolor, and appeared to be warning that the kind of riskier lending that caught out their banks might be more of a problem than the market thought.

Sure enough, the last couple of days have seen shares of Zions Bancorp (ZION) and Western Alliance Bancorp (WAL) dive after they revealed significant problems with borrowers. Such worries about leveraged lending have been hitting the stock of private equity groups for a while, and now it's spreading to the broader financial sector.

However, let's be clear, this obviously hasn't yet triggered a crash. The S&P 500 SPX has started Friday trading only down about 2% from its record high of October 8.

And for resolute bulls, such episodes of anxiety are seen as short-term dips that provide buying opportunities in a longer-term stock market rally. That's the message from Tom Lee, head of research at Fundstrat, who in a note emailed late Thursday, reiterates his call that the S&P 500 will finish the year at 7,000.

For Lee, there is contrarian positivity to be had from all the worrying. He accepts that cracks in the credit market are causing "apprehension" in stocks, and this has caused the Cboe Volatility index VIX to jump to 25, its highest level since the tariff-fretting days of April to May 2025.

Clearly investors still have memories of Silicon Valley Bank in 2023, when the Federal Reserve had to intervene, Lee observes. "So I can understand the 'fire, ready, aim' reaction," he adds.

That said, it's important to recognize the muted reaction in high-yield markets, says Lee, where spreads (the extra yield investors demand to hold riskier debt) are nowhere near the highs seen during the tariff-induced wobble in April. That "gives me some comfort that fundamentals are not deteriorating in an adverse way," he adds.

Source: Fundstrat

And Lee argues the market has other sentiment-based pillars of support, right now, notably, and counterintuitively, the American Association of Individual Investors survey that showed the proportion of net bulls fell 12.7 this past week.

"Investors continue to show low conviction around equities, which I view as a contrarian positive. If conviction wavers easily, then this is a sign that sentiment is not ebullient, " Lee says.

Indeed, he notes that current bearish AAII avg sentiment lines up with major stock market decline years. "Yet in 2025, the S&P 500 is up 13%. This is why this is the 'most hated V-shaped rally'," Lee says.

Source: Fundstrat

Meanwhile, on a more fundamental level, the market can be underpinned by well-received corporate earnings. Of the 51 companies that have reported so far this third-quarter season, 82% have beaten earnings per share consensus, and by an average 6.3%, according to Lee.

Finally, Lee reckons there'll be a seasonal factor that may lift equities, as professional investors strive to show they are in leading stocks and improve their returns for 2025.

"Keep in mind that only 22% of fund managers are beating their benchmark in 2025. This is the worst showing since before 2000," says Lee. "To me, this fuels upside into year-end."

The markets

U.S. stock-indices SPX DJIA COMP are mixed at the opening bell as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is up, while oil prices (CL.1) fall slightly and gold futures (GC00) are trading around $4,323 an ounce.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6629.07    -1.57%  -0.04%  12.71%   13.48% 
   Nasdaq Composite                                                     22,562.54  -2.01%  0.41%   16.84%   22.80% 
   10-year Treasury                                                     3.959      -7.70   -17.20  -61.70   -12.30 
   Gold                                                                 4348.5     7.75%   16.91%  64.76%   58.90% 
   Oil                                                                  56.42      -3.13%  -9.53%  -21.50%  -18.04% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

Investors will be closely gauging the market reaction to earnings from Fifth Third Bancorp (FITB), Truist Financial (TFC) and Regions Financial (RF). Shares of all three are recovering some of Thursday's losses in early Friday trading.

American Express (AXP) shares are higher after the credit-card company beat third-quarter earnings expectations and raised its full-year outlook on Friday.

Shares of Eli Lilly (LLY) and Novo Nordisk (NVO) are lower after U.S. President Trump said the administration was working on a deal to reduce the price of weight-loss drugs.

President Trump said he plans to meet again with Russian President Vladimir Putin for talks on ending the war with Ukraine.

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The chart

Source: Citigroup

Gold hit another record high early Friday, and the chart shows how buying has now picked up across the main three market time zones. "We have flagged increased Asian participation as an ongoing upside risk over the last 6 weeks, and this now appears to be materializing," say strategists at Citigroup. "In the last 3 weeks, China ETF flows have turned positive and we have seen more bullish price action during Asia hours." Citi says stay long gold, but be aware that the recent sharp run leaves the price extended, and it may be vulnerable to a pullback.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   AMD     Advanced Micro Devices 
   GME     GameStop 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 
   PLUG    Plug Power 
   PLTR    Palantir Technologies 
   NIO     NIO 
   INFY    Infosys 

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-Jamie Chisholm

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(END) Dow Jones Newswires

10-17-25 0931ET