Private credit investors should prepare for a stress phase in the market, but it’s a mistake to think another Great Financial Crisis (GFC) is looming, says Tom Lee, chief investment officer and head of research at Fundstrat Capital.
“It’s bad enough that financial stocks haven’t done well this year, despite what should be a good environment,” Lee said at the Future Proof Citywide festival in Miami on Tuesday.
“There could be a credit cycle,” Lee said. “So you have to discern winners and losers.”
Financial sector stocks have underperformed the broad market in both Canada and the U.S. this year, following outsized double-digit returns in 2025. The S&P/TSX Capped Financials Index has delivered low single-digit returns. The S&P 500 financials sector is in negative territory, while financial services companies on the Dow Jones Industrial Average are mixed.
Lee also criticized efforts to expand retail investor access to private markets.
“I think it’s bad,” he said.
Last summer, Lee and his team met with institutional investment clients, many of whom allocate to private credit. When asked about those bets, the investors said they see them as roughly equivalent to private equity investments — just on “the other side of the balance sheet.”
Lee disagrees.
“Private credit really is a credit quality decrement below private equity — it’s usually more highly leveraged companies that may not actually have alternative funding,” he said. “We could tell it was a market misallocation. … There’s too much private credit.”
Lee remains confident in household names such as Goldman Sachs and JPMorgan, however.
“Those companies can easily survive and even prosper,” he said. “If private credit has a downturn effect, they might actually do really well. JPMorgan has basically become a technology stock. They make money through every cycle.”
Lee expects leading financial services companies to use AI to make more selective credit calls, even as they reduce compensation costs.
“I think this is a good opportunity for the big financial players.”
Software stocks have bottomed
Known for his consistently bullish view on the technology sector, Lee repeated his view that software stocks are primed for a rebound.
“The best way to know if something has bottomed is that there’s bad news and it doesn’t go down,” he said. Oil prices shot up the day before amid supply concerns tied to geopolitical tensions involving Iran.
“If you thought software is on a downtrend, it should have really dumped,” Lee said. “But it basically was flat.”
He also said he expects initial public offerings from AI giants Anthropic and OpenAI to be “really successful.” Anthropic is reportedly preparing to go public, while OpenAI is expected to follow suit.
“There’s a lot of pent-up demand,” Lee said. “People actually use these products. Some of the best stories and stocks out there have been products that people use — and then they become shareholders.”