Tom Lee Sees Crypto Rally as Signal of Fed Policy Shift

Fundstrat’s Tom Lee argues that the recent rally in crypto and tech stocks signals an easing of monetary policy by the Federal Reserve, contrary to broader market expectations. Speaking on CNBC, Lee noted that traders had anticipated three rate hikes, including a 75% chance of one in October. However, last week’s softer jobs report shifted this outlook, with crypto and tech stocks reaching new highs, a move Lee says would be unlikely under tightening conditions.

Lee also offered a contrarian view on the CLARITY Act, predicting that Democrats will support it post-midterms. Despite the bill’s failure in a Senate procedural vote on September 15, he believes the midterm elections will serve as a turning point. He described the midterms as a “clearing event” that could trigger a risk-on sentiment, regardless of the outcome.

Looking ahead, Lee expects inflation to soften over the next six months, allowing the Fed to step back from its hawkish stance. He highlighted the 10-year Treasury yield, currently at 4.75%, as a key indicator, suggesting that yields under 5% would be positive for risk assets. Lee also set an S&P 500 target of up to 8,400, citing accelerating earnings, cheaper stock valuations, and high oil prices as tailwinds.

While Lee acknowledges the potential for a market pullback between mid-October and the midterms, he remains cautious about predicting it due to already negative sentiment and investor caution.