Why Tom Lee Sees a Third Labor Shortage Era Driving Markets

Markets have endured years of disruption. Yet, according to Tom Lee, that disruption matters more than most investors admit. He argues the economy absorbed repeated shocks that suppressed confidence and risk appetite. As a result, markets now resemble a coiled spring. This view frames his belief that 2026 could unfold with stronger fundamentals despite persistent skepticism.

Lee describes recent years as a series of “extinction events.” These include the pandemic, supply-chain breakdowns, rapid inflation, and aggressive interest-rate hikes. He also points to tariffs and geopolitical tensions as forces that rattled investors. Together, these events created fear around taking full risk. However, Lee believes that fear itself signals underlying resilience.

Markets, in his view, do not peak during doubt. Instead, they peak when optimism becomes unchecked. Because skepticism still dominates sentiment, Lee reads current conditions as constructive rather than dangerous.

Markets, Volatility, and the Wall of Worry

Lee’s framework centers on the idea that markets “climb a wall of worry.” He argues that persistent caution keeps prices responsive to good news. Therefore, today’s environment, marked by hesitation, may still favor upside.

That said, he does not dismiss volatility. Lee expects a meaningful pullback before momentum resumes. He describes this as a “miniature bear market.” Historically, three consecutive years of strong gains often lead to consolidation. Consequently, a correction would not end the cycle. Instead, it would reset expectations and create buying opportunities.

This outlook reflects balance rather than blind optimism. Lee stresses that digestion matters after years of outsized returns. Even so, he maintains that skepticism outweighs euphoria, which supports his bullish stance.

The Third Labor Shortage Era and Technology’s Role

A central pillar of Lee’s argument is labor. He believes the United States entered a third labor shortage era in 2018. According to his estimate, this period could extend through 2035. As workforce gaps widen, businesses must invest heavily in technology.

Here, Lee draws a historical comparison. He likens artificial intelligence to frozen food innovations in the early twentieth century. That shift reduced agricultural labor dramatically while lowering costs. Rather than destroying the economy, it reshaped work and productivity.

Similarly, Lee argues AI will increase efficiency instead of causing economic collapse. While some roles may change, technology could free labor for new tasks. Therefore, fear around job displacement may echo past anxieties that proved overstated.

AI, Bubbles, and Long-Term Outcomes

Concerns about an AI bubble persist. Lee acknowledges that many AI-related stocks may underperform. However, he compares the current moment to the internet era. Investors who held the broader internet basket over time outperformed the market, even though many individual companies failed.

He applies the same logic to AI. While most stocks may disappoint, the sector as a whole could still outperform. This basket approach tempers expectations without abandoning opportunity.

Lee also addresses his reputation as a permabull. He notes the label dates back to 2009. In his view, long-term outcomes validated optimism over persistent caution. Still, he concedes risks remain. If AI disrupts labor markets severely, global consequences would follow. Even then, he believes the United States would fare better than most.

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As markets approach 2026, the question remains whether resilience or fear will dominate decision-making.

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