Tom Lee on Why There Is “Dry Powder” for a V-Shaped Stock Rally and $TSLA Is Exhibit A for This Move

Summary

In this weekly update from Tom Lee, Chief Investment Officer at Fundstrat Capital, he discusses the performance of Fundstrat's US Large Cap Granny Shots ETF. Despite recent market turbulence, Lee highlights the potential for a strong market rebound, fueled by increased money market cash balances, declining margin debt, and hedge fund positioning. He also points to the recovery of stocks like Tesla as a sign of a broader market rally. Lee emphasizes the importance of durable investment themes such as AI, energy, and cybersecurity, and explains the strategy behind the Granny Shots portfolio, which focuses on stocks with long-term growth potential.

Takeaways

• 😀 The Granny Shots ETF priced at $1865 with total assets of $867 million as of March 21, 2025.
• 😀 Over the past week, the ETF gained 1.19%, outperforming the S&P 500 by 61 basis points.
• 😀 Despite the S&P 500 remaining flat for the past 8 months, market indicators suggest potential upside due to rising money market cash balances (up by $850 billion).
• 😀 Margin debt has been declining, which means there's less leverage risk and more buying power in the market.
• 😀 Hedge fund positioning is at its lowest point in years, which could provide fuel for an upward market rally.
• 😀 The recent market correction was driven by concerns over tariffs, recession, and Fed policy, but there are signs of easing tensions.
• 😀 The 'Trump put' is evident in the resurgence of Tesla's stock, which has rebounded significantly, offering a potential template for broader market recovery.
• 😀 Tesla's V-shaped recovery, if confirmed, could signal a broader rally across the market, with $330 being a key level to watch for confirmation.
• 😀 The Granny Shots ETF's top performers include GE Vernova, Cadence Design Systems, Palantir, AMD, and Netflix, while Accenture struggled due to its government contracting exposure.
• 😀 Key thematic drivers for the ETF include energy, cyber security, AI, automation, and PMI recovery, with an emphasis on quality growth stocks.
• 😀 Tesla's recovery is seen as an essential indicator for broader market sentiment, with a focus on long-term structural themes like global labor, millennials, and technology advancements.

Q & A

What is the current price and NAV of Fundstrat's US Large Cap Granny Shots ETF as of March 21st?

The price and NAV of the Fundstrat's US Large Cap Granny Shots ETF as of March 21st is $1865, with total assets of $867 million.

How did Granny Shots perform over the past week compared to the S&P 500?

Over the past week, Granny Shots gained roughly 1.19%, while the S&P 500 gained 5.3%. This resulted in a relative performance gain of 61 basis points.

What has been the market trend over the last eight months?

The market has been trading within a wide range over the past eight months, with the S&P 500 roughly at the same level it was eight months ago.

How have money market cash balances changed since July of the previous year?

Money market cash balances have risen from $6.1 trillion at the end of July last year to $7 trillion, indicating a significant amount of dry powder on the sidelines ready to buy stocks.

What is the current state of margin debt, and what does it indicate for the market?

Margin debt has been declining, which suggests there is additional dry powder available for potential market growth, although the end of March data has not been released yet.

What does the positioning of hedge funds look like currently?

Hedge funds' net long positioning is at its lowest level in over a year, even lower than before 2020, which could indicate potential upside for the market.

What factors contributed to the recent stock market shock?

The recent stock market shock was primarily driven by the tariff war, concerns about a potential recession caused by Dogecoin, and the lack of a 'Fed put' or 'Trump put' support.

What is the role of the 'Fed put' in the market, and how was it evident last week?

The 'Fed put' refers to the market's expectation that the Federal Reserve will intervene to support the market. Last week, it became evident during the FOMC rate decision, which helped stabilize investor sentiment.

What impact is the potential tariff war deal having on the market?

The rhetoric around the tariff war has dialed back, and there seems to be a potential deal in place, which is not as drastic as initially expected, but still positive for the market.

How is Tesla's stock relevant to the overall market outlook?

Tesla's stock has experienced a significant decline and is now showing signs of a V-shaped recovery. If Tesla successfully rebounds, it could be a template for the S&P 500's potential recovery, signaling a broader market rally.

What are the top and bottom contributors to Granny Shots' performance last week?

The top contributors to Granny Shots' performance last week were GE Vernova, Cadence Design Systems, Palantir, Advanced Micro Devices, and Netflix. The bottom contributors were Garmin, Meta, Nvidia, Progressive Corp, and Accenture.

What are the key investment themes within Granny Shots, and how are they performing?

The key investment themes within Granny Shots include energy and cybersecurity, quality growth, and PMI recovery. Energy and cybersecurity stocks, such as GE Vernova and Palantir, are leading, while PMI recovery stocks, like Goldman Sachs and JP Morgan, are also performing well.

What is the significance of the 'Trump put' and how is it impacting the market?

The 'Trump put' refers to the market's perception that President Trump will intervene to prevent severe downturns. This is evident in the behavior of Tesla's stock, where actions to support Tesla's recovery are seen as part of this broader market support.