MW Retail investors missed the rally. Why strategist Tom Lee says they'll lead the next one.

By Nora Redmond

Tom Lee, head of research at Fundstrat, said he thinks the S&P 500's V-shaped recovery caught many retail investors off-guard.

Retail investors are going to drive the S&P 500's continued gains, according to financial research boutique firm Fundstrat.

The S&P 500 SPX hit a new high at the closing bell on Wednesday, reaching 7,022.95, after having already broken four records since the beginning of the year. It comes as investors have increasingly shrugged off the potential implications of a prolonged war in Iran and have proven to be optimistic ahead of a fresh batch of earnings.

Tom Lee, head of research at Fundstrat, explained in his 'Macro Minute' video update on Wednesday that this is what caught retail investors off-guard.

He explained that since 1929, stock markets have tended to have a V-shaped recovery - something which many non-institutional investors are unaware of, expecting rebounds to take more time.

Lee said instead of buying the dip, like hedge funds, retail investors were raising cash, selling aggressively. And even as markets started to reverse, they stayed "staunchly bearish," missing the rally, he added.

However, Lee said he thinks retail investors will be "fuel for the continued upside," outlining four reasons for this.

Firstly, he said, there's the "fog of war," where like during World War II, stocks bottom early into a conflict.

The second reason Lee has was that people have been waiting for good news, but markets tend to bottom on bad news.

Thirdly, "no one's ever going to ring the bell at the bottom," he said, highlighting that the March 30 low of 6,344 didn't feature any development that would catalyze the market. "The market just stopped responding to bad news."

Lee's fourth point is that wartime spending is positive for the economy, with earnings estimates already having risen.

"This is all the makings of the most hated V-shaped rally again," he said.

Fundstrat holds that the groups which have outperformed since the start of the war will be the ones to lead the recovery. Lee listed technology, namely the Magnificent Seven, and cryptocurrencies, like bitcoin (BTCUSD) and ethereum (ETHUSD), industrials and financials as some of the best stocks to buy during a market low.

Lee also is chairman of BitMine Immersion Technologies (BMNR), which is a buyer of ethereum.

In a separate note, Citadel Securities' Scott Rubner said retail investor engagement is starting to pick up again over the last few sessions, evidenced by more single stock activity as opposed to ETFs and indexes.

He said retail investors may have been influenced by the need to pay taxes after a successful year for stocks in 2025.

-Nora Redmond

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April 16, 2026 05:38 ET (09:38 GMT)

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