September Dread: Tom Lee's 10% Pullback Warning and 5 Stocks to Navigate It

August was supposed to be strong, and it was. $AAPL surged 37% over the past year on iPhone momentum, the Nasdaq posted a nearly 4% gain for the month, and the bulls who stayed in were rewarded. But now Tom Lee of Fundstrat, who was right when most were bearish, is flashing a yellow light for September.

In a CNBC appearance covered this week, Lee said his earlier call for a 10% pullback in September may now be delayed to October, but the risks haven't gone away. He expects a convergence of worries that have kept investors cautious to finally start mattering. That's not a pivot to bearishness, it's a recalibration. His S&P 500 year-end target remains at 8,200 or higher, buoyed by earnings revisions that have pushed 2027 EPS estimates from $350 toward $425. That's a meaningful upgrade, and it's the kind of number that makes even the skeptics uncomfortable being short.

The wildcard everybody is watching is the Fed's September 15th meeting. Lee's base case is that the Fed holds rates steady, and if that happens, he believes markets could rally hard. Fed Chair Kevin Warsh delivered a hawkish speech at Jackson Hole, reaffirming the 2% PCE target with inflation running at approximately 3.7%, driven by energy costs and AI-related demand. Barclays has already changed its call to expect two quarter-point hikes. If Warsh actually pulls the trigger on a hike, all bets are off for the near term.

Meanwhile, the geopolitical backdrop is doing nobody any favors. US-Iran exchanges resumed in the Strait of Hormuz, pushing Brent crude above $90 per barrel and the 30-year fixed mortgage rate to 6.87%, its highest since June 2025. The Dow dropped 374 points on the last day of August alone. Add the FTC's planned lawsuit against $AMZN over advertising price manipulation, and you have a market that finished the month up but ended the week rattled.

The sentiment picture from YouTube channels is fascinatingly split. TheChartGuys describe markets as stuck in a choppy, balanced range with the NASDAQ trying to establish a weekly higher low. Bears need to confirm a daily downtrend, bulls need to hold support. It's a coin flip, which is exactly the kind of setup that punishes people who get too cute. $NVDA anchors the bull case with its $3.5 billion MediaTek investment, the largest non-US investment in its history. $PANW reports this week with 30% expected revenue growth but trades at over 90 times forward earnings after nearly doubling year-to-date, which is the kind of valuation that makes September corrections hurt more than average.

September's reputation as the worst month for stocks is a cliche precisely because it keeps being true, and this year the setup is unusually loaded with binary outcomes. One Fed decision on September 15th could either validate Lee's bullish thesis or hand the bears their moment. Pick your side, but know which one you're on before the meeting.