The head of research at Fundstrat says that the de-escalation of the trade war between the US and China could be the catalyst for a massive reversal in the stock market.

In a new interview with CNBC Television, Tom Lee says that tariff negotiations between the nations cooling down would decrease the probability that the economy goes through a recession.

“We know markets have gotten very pessimistic, they’ve priced in a 60% probability of a recession, and if tariff negotiations de-escalate, then the probability isn’t that high, so I think that there’s still a big window for markets to have a large rebound but it’s really the path of this de-escalation.”

According to Lee, investors should pay attention to how the tariff war between the US and China plays out. He says that if the tariffs remain in place, it could be bad news for the world economy. However, if one of the nations capitulates or the situation de-escalates – a scenario he deems likely – it could lead to a turnaround for the stock market.

“The US and China have absurd levels of reciprocal tariffs at the moment. And if you believe those are in place, then the global economy is in trouble and you should be bearish.

But if this is a matter of who makes the overture first or blinks, but we know it de-escalates, then I think the downside comes off dramatically, and I think stocks can actually do really well into the rest of the year.”

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