Tom Lee, head of research at Fundstrat and CIO of Fundstrat Capital, appeared on CNBC’s ‘Closing Bell Overtime’ to discuss the implications of rising bond yields and the broader market outlook. With the 10-year yield reaching its highest level since April, Lee suggested that the market might be misinterpreting the signal from yields. He explained that while current levels are uncomfortable, they are unlikely to persist in the coming months. Lee pointed out that if inflation pressures ease or if the job market softens, the focus could shift back to the Federal Reserve’s support mechanisms, potentially indicating a stabilization or even a decline in yields.
Regarding small caps, which have underperformed expectations set by Lee in 2024, he remains optimistic for 2025. He noted that small caps have faced significant challenges but highlighted a favorable environment due to an incoming pro-business administration that could boost CEO confidence and increase merger activities. Despite a decade of underperformance compared to the S&P 500 (SPX), Lee believes small caps are attractively priced, with a median P/E ratio of around 11 times — significantly lower than that of larger companies. This disparity suggests strong potential for recovery and growth in the new year.
On the topic of more speculative investments like quantum computing stocks, Lee advised a long-term perspective. He acknowledged the volatility and the difficulty in predicting timelines for innovation but stressed the importance of not underestimating the pace of technological adoption.
“I don’t think anyone can really judge whether it’s 15 years away or 15 months,” Lee stated, referencing comments made by Nvidia CEO Jensen Huang during Nvidia’s Analyst Day. Huang had suggested that quantum computers could be 15 to 30 years away from becoming a reality, highlighting the significant uncertainty surrounding the timeline for achieving practical quantum computing.
Lee pointed out that similar skepticism has surrounded other transformative technologies in the past, like social media and AI. Despite recent market jitters, he suggested that now might be a time for investors to consider leaning into these innovative sectors, especially as market sentiment towards AI and similar technologies seems to be at a negative turning point, potentially signaling a buying opportunity in the near future.
Lee’s insights provide a nuanced view of market dynamics, suggesting caution but also an opportunity for strategic investment as economic and political landscapes evolve.
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