Tom Lee Cites Crypto Rally as Signal of Fed Easing and CLARITY Act Support

Tom Lee, managing partner and head of research at Fundstrat, believes crypto’s recent rally signals two major shifts in the market. Speaking on CNBC, Lee argued that the strength in digital assets and tech stocks suggests investors are anticipating easier monetary conditions from the Federal Reserve. He noted that markets had previously priced in three rate hikes, including a 75% chance of a hike in October, but last week’s softer jobs report has changed that outlook.

Lee also made a contrarian prediction about the CLARITY Act, a bill aimed at providing regulatory clarity for crypto markets. Despite its recent failure in the Senate, Lee expects Democrats to support the legislation after the midterms. He believes investors have been cautious ahead of the vote, assuming Democrats oppose both the CLARITY Act and AI-related data centers, but he anticipates a shift in stance post-midterms.

Looking ahead to the midterms in about four weeks, Lee described the vote as a “clearing event” that could serve as a risk-on signal for markets. He also forecasted softer inflation readings over the next six months, which would allow the Fed to step back from its hawkish stance and let bond yields settle. Lee sees a good chance of the 10-year Treasury yield falling below 5% within six months, a positive sign for risk assets.

For the S&P 500, Lee set a target of 8,200 to 8,400, citing accelerating earnings growth, cheaper stock valuations, and high oil prices benefiting the U.S. economy. However, he cautioned that a market pullback could occur between mid-October and the midterms, though he remains hesitant to predict it confidently given the current negative sentiment.