Tom Lee, Head of Research at Fundstrat, shed light on the market’s tumultuous response to the sudden surge in tariffs.

What Happened: Lee expressed regret for underestimating the impact of the tariffs on the “Liberation Day.” The market reacted with a sharp drop of almost 13% over just two trading days—an event Lee compared to a “heart attack” for both the stock market and the broader economy, stated Lee in a recent interview on CNBC Squawk Box.

Despite the initial shock, Lee pointed out signs of recovery, such as the Nasdaq closing higher the previous day. He suggested the emergence of a “Trump Put” – a market-stabilizing intervention similar to past administration actions to soothe financial turbulence. Lee also noted that markets may have overreacted, and a technical rally could be on the horizon.

“It’s going to take a little time for the markets to regain some trust,” he said.

Mark Newton, head of technical strategy at Fundstrat, shares this outlook, forecasting a possible rebound toward the 5,500 level on the S&P 500. However, Lee warned that a lack of clear fundamental direction makes it challenging to anticipate a return to record highs anytime soon. “I do think we're kind of stuck in the near term,” he said, highlighting the ongoing uncertainty.

Lee highlighted concerns about a potential trade war with China, noting that while talks with seven other key countries representing 70% of the U.S. trade deficit, including the EU, Japan, Korea, Vietnam, Canada, and Mexico, seem positive, tensions with China remain unresolved. He suggested the U.S. might try to isolate China or shift supply chains, but warned the issue may linger without a clear solution.

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Why It Matters: Last week, Lee had previously characterized the sudden tariff rates as “absurd,” comparing them to a “dark comedy” due to their arbitrary nature and lack of economic rationale. The immediate market reaction was a significant 3.5% opening gap down in the S&P 500, marking the seventh largest negative opening gap in 40 years.

Furthermore, Mark Spitznagel, a well-known bearish investor, had warned of an 80% crash in the stock market, following President Donald Trump‘s tariff rollout. He suggested that the current market drop post President Trump's tariff rollout is not the significant crash he anticipates, but a precursor to a more severe event.

Although a V-shaped recovery is still on the table, Lee emphasized that rebuilding trust will depend on clearer communication from policymakers. At present, the so-called “Trump Put” provides some hope for stability, but its effectiveness relies on the administration's skill in managing ongoing talks and avoiding further tensions, especially with China. As Lee put it, the situation is “very fixable,” but only time will reveal how well it's handled.

READ MORE: Mark Cuban Says Between ‘Free Trade’ Elon Musk And ‘Full Tariff’ Trump, It Is The President Who Will Win As Stock Futures Tank

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.