Investors should hesitate to dive into stocks after rate cut as election uncertainty looms, says Fundstrat’s Tom Lee

• Tom Lee has long called for a recovery in the stock markets after the Federal Reserve cut interest rates.

• But after Wednesday’s big cut of 50 basis points, Lee says he sees uncertainty looming ahead of the election.

• Other analysts have also warned of volatility ahead of the November election.

Prominent stock market bull Tom Lee has long called for a big rally after the Federal Reserve cut interest rates.

But after a big cut of 50 basis points on Wednesday, Lee says he is being cautious ahead of the November election.

“This cycle of Fed cuts, I think, is setting the stage for markets to be really strong over the next month or the next three months,” Lee, co-founder and head of research at Fundstrat Global Advisors, told CNBC in an interview Thursday.

“But what stocks do between now and, let’s say, Election Day, I think is still a big uncertainty. And that’s why I’m a little bit hesitant for investors to dive in,” he added.

In the days leading up to the Fed’s policy meeting, Lee said a rate cut would happen position stocks for a multi-week rallyunderpinned by further confidence that more rate cuts are in the offing and that a soft landing is in the offing.

That rally would happen regardless of a 25 or 50 basis point cut, he said, if the Fed suggested future cuts are likely. But even then, Lee acknowledged there would be volatility in the run-up to the election but would calm down afterward for a strong year ahead.

Lee has been bullish on stocks for years, with predictions that the S&P 500 could triple 15,000 by 2030.

Other analysts have also recognized the market volatility that comes with presidential elections.

That volatility typically peaks in mid-October Ahead of the November election, after which stocks will see a relief once the outcome is announced, SoFi’s Liz Young Thomas told Business Insider earlier this month.

With election-related volatility ahead, Lee recommends investing in cyclical stocks in sectors such as industrials, financials and small caps.

Small-cap stocks in particular will benefit from rate cuts and what Lee calls a “cyclical boost to the economy,” which will result from a decline in consumer costs such as mortgages, auto loans and credit cards.

“These are all big tailwinds for small caps,” he said.

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