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7 reasons why stocks have positive support in the near term despite rising bond yields, according to Fundstrat’s Tom Lee


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Rising bond yields may be giving investors some apprehension about the stock market’s trajectory, but Fundstrat’s Tom Lee says any dips will be buying opportunities.

In a recent note the head of research said many clients are nervous that the bond market may reach a “breaking point” during Fed Chair Powell’s testimony later this week. While Lee said its possible stocks could act “nervously” ahead of and during the testimony, the larger story is that equities have multiple positive supports.

Here are Lee’s 7 reasons why stocks have positive support in the near term. 

  1. Washington is moving forward with a large fiscal relief package of up to $1.9 trillion, with the house set to vote on the finalized bill this week. Treasury Secretary Janet Yellen has also made a “forceful case for” the stimulus, said Lee. 
  2. The Federal Reserve has been vocal in its policy stance and last week’s FOMC minutes affirmed this. The Fed is “patient,” Lee added. 
  3. The US economy is re-opening and economic momentum is strong. Lee noted that JPMorgan’s chief economist Bruce Kasman recently said the US’s V-shaped recovery will soon surpass China’s. 
  4. COVID-19 cases are declining. “There remains a substantial perception gap between policymakers/media and COVID-19 realized data, and a closing of this gap is positive for risk assets,” said Lee. He notes that in the US, cases have been lower versus 7 days ago for the last 41 consecutive days. Lee expects daily cases to fall below 50,000 early this week.
  5. Lee highlighted that younger investors, particularly millennials are “steadily allocating” their portfolios to stocks. The surge in retail brokerage account opening is evidence of this, he said.
  6. Conditions for stocks are still favorable in relation to bonds, Lee said. “Bonds are becoming less attractive total return vehicles as inflationary expectations are increasing, boosting the attractiveness of equities.”
  7. The CBOE volatility index, or VIX, is steadily declining. According to Lee, “periods of declining volatility historically lead to big equity gains, particularly for cyclicals.”

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