Fundstrat's Tom Lee says risk-reward for stocks remains positive amid 'healthy' market pullback

Published Thu, Sep 10 20206:19 PM EDTUpdated Fri, Sep 11 20206:02 AM EDT

Kevin Stankiewicz @in/kevin-stankiewicz-b5593466 @kevin_stank

(This story is for CNBC Pro subscribers only.) Fundstrat Global Advisors founder Tom Lee told CNBC on Thursday that he remains constructive on U.S. equities despite the recent market pullback following its rapid rise from coronavirus lows. "I think the risk-reward for stocks is still positive. There aren't a lot of catalysts between now and year-end but ... the market's had a great August," Lee said on "Closing Bell." "Stocks aren't invincible so I think it's really healthy to see this sort of correction and rotation." Lee expressed confidence in the market's ability to recover from the pandemic-induced drop before most on the Street. As of Thursday's close, the S & P 500 was up more than 50% since its March 23 intraday low. However, the benchmark U.S. index gave back 1.8% Thursday as a sell-off in technology stocks reemerged. The S & P 500 is down over 6% in the last five sessions. Lee, who also is Fundstrat's head of research, acknowledged the recent struggles of large-cap technology stocks and emphasized how important to the market rally those names have been. But for investors who are trying to chart a path forward, Lee said there is opportunity in stocks that have been beaten up as a result of the pandemic such as the travel sector. "From a risk-reward perspective, especially if the economy is reopening, and we get something like a cure or a vaccine, the stocks that really benefit are what we call the epicenter, those that were hardest hit by the pandemic. They're under-owned," he said. "With sentiment so negative toward the economy, that as consumers gain some confidence — not saying that's going to happen — but if they do and they start to go back to work and they start to emerge and really reengage with the economy, the epicenter stocks are going to move the most." Lee, the former chief equity strategist at JPMorgan , also said bank stocks would similarly benefit as economic conditions improve. The XLF financials ETF is down about 20% this year despite the strong rally in other areas of the market. "I think banks are suffering from the same thing that's affecting all these reopening stocks, which is when the market cares about price momentum or earnings visibility, they're going to be buying the same mega-cap stocks in growth and that's 76% of the market. So you have about a quarter of the S & P sort of stock in neutral or actually in reverse," Lee contended. "I think that's where the risk-reward is. But people just don't have a lot of confidence that this rotation should take place."

A view of the Wall Street street sign with the New York Stock Exchange during the coronavirus pandemic on May 25, 2020 in New York City.

Noam Galai | Getty Images

(This story is for CNBC Pro subscribers only.)

Fundstrat Global Advisors founder Tom Lee told CNBC on Thursday that he remains constructive on U.S. equities despite the recent market pullback following its rapid rise from coronavirus lows.

"I think the risk-reward for stocks is still positive. There aren't a lot of catalysts between now and year-end but ... the market's had a great August," Lee said on "Closing Bell." "Stocks aren't invincible so I think it's really healthy to see this sort of correction and rotation."