Tom Lee claims the rise in the crypto market signals a shift: The Fed will move towards easing, and Democrats will support the CLARITY bill after the midterms
The Tom Lee indicated by Fundstrat suggests that the crypto market is sending a signal to investors that has not yet been fully recognized by the broader market. In an interview with CNBC, he stated that if tighter monetary policies are indeed on the horizon, digital assets and tech stocks are unlikely to rise; he also predicted that after the mid-term elections, Democrats will shift their support to the CLARITY legislation.
Why is the strength of the crypto market so important?
Lee indicates that the market has been preparing for the 'most hawkish' Federal Reserve all along. Traders have already factored in the expectation of three interest rate hikes, including a 75% probability of a hike in October.
In his view, last week's relatively modest employment report changed this situation. He pointed out that tech stocks reached new highs, and the crypto market "performed very well," which is evidence of this. Lee said that such assets "cannot perform well under tightening monetary conditions," so in fact, they are reflecting in advance that future financial conditions will tend to become more relaxed.
His reverse judgment on the CLARITY bill
Lee indicates that AI stocks and crypto assets have stagnated before the mid-term elections because investors believe that the Democratic Party opposes both data centers and CLARITY legislation. However, he holds the opposite view, expecting the Democratic Party to start supporting both after the voting is over.
This encryption market structure bill was not passed in a procedural vote in the Senate on September 15th with 49 votes to 50, far from the required 60 votes. The predictions of Lee suggest that this setback may not be the final outcome.
Midterm elections could become a turning point
With about four weeks left until the mid-term elections, Lee described this voting period as a "clearing event," and stated that "regardless of the outcome," it could signal a rebound in risk appetite. He said that if Congress is controlled by the Democrats, it would mean a policy stalemate, which the market prefers.
Inflation, Yield Rates, and the Federal Reserve
Lee It is expected that as the one-time pressure subsides, inflation data over the next six months will tend to be more moderate. The next inflation report will be released in two weeks. This will allow the Federal Reserve to move back from its hawkish stance and stabilize bond yields.
He said that the yield on 10-year U.S. Treasury bonds was 4.75% before the Jackson Hole Conference. He stated that any level below 5% would be considered favorable for risk assets, and he believes that such a situation is very likely to occur in the next six months.
S&P 500 target: up to 8,400 points
The S&P 500 index closed above 7,700 points again on Friday. Lee believes that there is still up to 9% room for growth this year, with the corresponding range being between 8,200 and 8,400 points. The reasons he cites include:
- Profits are accelerating: Profit growth in the third quarter could approach 30%.
- Stocks are becoming cheaper: Profit forecasts for 2027 have been raised by more than 20% this year, while the index has not even reached this level of increase.
- Oil prices provide support: High oil prices will strengthen the U.S. economy, as the United States is an energy exporter.
The risks he still sees
Lee does not rule out the possibility of a market correction. He stated that there could be a "speed bump" between mid-October and the mid-term elections. However, given that current market sentiment is already negative and investors are more cautious, he is reluctant to make such a judgment with great certainty.
Article source: CoinPedia; Author: Anjali Belgaumkar.
