Fundstrat strategist Tom Lee contends that the market is misinterpreting rising Treasury yields, viewing them as an outright danger to equities when they are instead separating robust businesses from vulnerable ones.
Stepping into an ongoing discussion on a panel, Lee was called upon to address a disagreement between two previous guests regarding whether soaring yields spell danger for stocks. Rather than backing either side, he shifted the perspective, asserting that the key concern is not the rising yields themselves, but rather which businesses can sustain growth amidst the increases.
Yields as a Filter, Not a Flat Tax
The 10-year Treasury yield touched 5.04% on September 15, and the 30-year Treasury yield reached its highest level since 2004—and its highest mark since 2007—just days after the Federal Reserve enacted its initial rate hike since 2023, raising its target range to 3.75%-4.00%.
During an appearance on CNBC’s Closing Bell, Lee disputed the notion that such a move is universally negative, explaining that the market is still determining whether this represents a permanent shift or a temporary adjustment—a debate that had minimal impact on cryptocurrency prices following the policy announcement.
According to Lee, elevated borrowing expenses do not impact all companies equally. Strong, well-funded corporations maintain straightforward access to capital, whereas smaller and more fragile competitors face severe hurdles, thereby widening the performance gap between them.
He noted that this mechanism accounts for the persistence of mega-cap technology stocks despite climbing yields, as their advantage in securing financing becomes increasingly pronounced while financial conditions tighten for everyone else.
A Disinflation Case Lee Says Is Underpriced
Lee remains similarly optimistic regarding inflation, anticipating that both headline and core metrics will decline significantly over the coming six months as the impact of tariffs diminishes, recent artificial intelligence-driven increases in memory-chip costs subside, and crude oil prices stabilize near $100 per barrel.
Additionally, he pointed to a technical market driver: the Bureau of Economic Analysis’s September 30 methodological update to the Personal Consumption Expenditures price index, which he projects could reduce the annual rate by 20 to 40 basis points.
Separate forecasts from TD Securities and Wells Fargo estimate the impact at a more conservative 15 to 20 basis points, which remains smaller yet still aligns with the direction of his argument.
When host Scott Wapner questioned what might occur should yields and inflation persist above expectations past his six-month timeline,
Lee conceded that uncertainties remain, though he maintained that available data still points toward a genuine deceleration in inflation—a trend with significant implications for both traditional equities and the cryptocurrency market, given their strong correlation with real yields throughout the year.