: Good for stocks? Why Tom Lee says the attack on Israel may help equities

by | Oct 9, 2023 | Stock Market

It may not seem obvious why an attack on Israel that has killed hundreds, already led to retaliatory strikes, as well as possible regional war, would be good for stocks. And, on day one, it doesn’t appear it will be, with futures on the stock-market contracts

pointing to a weaker start. But Tom Lee, head of research at Fundstrat, says there could be a silver lining.

He said interest rates should decline sharply on a “risk off” environment where investors are reluctant to buy riskier assets. “The rally in bonds (also means falling rates) could break the ‘short the bond market’ fervor that has gripped the rates market for the past month, post-Sept FOMC. And as such, we believe a substantial decline in interest rates could happen with the 10-yr backing off from the high 4.8%-ish ranges seen lately,” Lee said in a note to clients. He acknowledged that what he writes may make people feel uncomfortable. “It feels awkward to write about equity market impacts from the Israel-Gaza war. War is a tragedy and resulting in heart-breaking loss. And yet, in our view, we do not view this conflict as altering the underlying recovery in equities. And if interest rates decline, as is anticipated, this is supportive of equity valuation,” he said. The U.S. bond market was closed Monday in observance of Columbus Day, though Treasury futures
traded higher.

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