Fundstrat's Tom Lee. Photo by Cindy Ord/Getty Images Yahoo
Fundstrat's Tom Lee stated that he believes US stocks can resume their rally despite rising bond yields. He spoke to CNBC.
He stated that his previous call for an 'everything rally" is now being tested as stocks plunged on Tuesday.
Tech stocks fell as the 10-year Treasury yield rose past 1.5%.
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Fundstrat's Tom Lee stated that while bond yields are on the rise, stocks could still climb to the end of 2021.
As the 10-year Treasury yield rose to 1.56%, it was accompanied by a sharp stock market decline. Lee dismissed the rise, calling it a "headline number" and pointing out positive reasons for yields climbing.
"A strong economy means that there is an increase in demand and a decrease in supply. This causes inflation and higher interest rates. Lee stated that it is good for return on capital and higher interest rates.
"But that's precisely the environment between 1950 and 1970. He said that anyone who has studied markets would know that rising rates aren't a market killer.
The Nasdaq 100, a tech-focused index, was particularly affected by the 10-year yield's rise. This drove the index down 2.5% on Tuesday and extended its losses into the second day.
Market decline was led by high-growth stocks like Amazon and Facebook. Investors saw tech companies as the top beneficiaries of low interest rates that could fuel growth in their businesses.
This week's rise in yields was partly fueled by the warning of Jerome Powell, Federal Reserve Chairman, that global supply chain disruptions and tight labor markets could cause inflation to remain higher than expected. Investors may expect higher inflation to prompt the Fed's benchmark interest rate hike from near-zero levels earlier than expected.
Lee predicted that the US stock market could experience an "everything rally” if COVID-19 patients retreated in this fall, as Lee did in August.
Lee said that the rally projection was being "really put to the testing" on Tuesday. Lee said that he believes there has been significant damage to the tech trade, growth, and technicals of the S&P. He said that this seemed to him like a prelude to a consolidation and a move higher. "I believe that everything would rally to the end of the year, and I'm still strong in my camp."
