Tom Lee Forecasts 10-Year Yield Below 5% as Crypto Signals Easing

Fundstrat's Tom Lee expects U.S. bond yields to normalize within six months as inflation readings soften, arguing that current strength in technology stocks and crypto assets signals that investors are anticipating easier financial conditions. Lee told CNBC that he believes the Federal Reserve will walk back its hawkish stance as inflation uncertainty eases, a shift he views as critical for risk-on assets.

Lee stated that the 10-year Treasury yield could fall below 5% within the next six months. He noted that any yield under that threshold would be interpreted by markets as positive for risk assets. This outlook comes while Treasury yields remain elevated and investors monitor the Federal Reserve for signs of a change in its rate stance. Lee pointed to market leadership as evidence of this anticipation, observing that tech stocks are making new highs and crypto is performing well, a combination he said is inconsistent with tightening monetary conditions.

Lee remains bullish on equities, citing accelerating earnings growth that has made the market less expensive despite its gains this year. He projected that third-quarter earnings growth will be nearly 30%, while EPS revisions for 2027 earnings have increased by more than 20% since the start of the year. Lee calculated that because the S&P 500 has not risen 20%, the valuation multiple has actually decreased. He reiterated his forecast for the S&P 500 to reach roughly 8,200 to 8,400 by year-end, though he acknowledged the possibility of a correction between mid-October and the midterm elections.

In digital assets, Lee asserted that Bitcoin's four-year cycle bottom has arrived and predicted the coin will close above $100,000 this year. He also expects Ethereum to reclaim its previous high of just under $5,000. Lee described Bitcoin and crypto generally as leading indicators for the stock market, calling crypto's third-quarter resilience a signal for a potentially explosive fourth quarter for equities.

At the time of writing, Bitcoin traded at approximately $85,900 after edging 0.8% higher in the last 24 hours. The price pared gains after coming within $500 of its September high of around $87,400. Retail sentiment for Bitcoin on Stocktwits shifted to neutral from bearish over the past day. Ethereum moved about 0.4% higher, trading range-bound near $2,700, with retail sentiment also improving to neutral from bearish.

U.S. equities traded lower in pre-market on Monday. The SPDR S&P 500 ETF (SPY) fell 0.12%, the SPDR Dow Jones Industrial Average ETF (DIA) slipped 0.011%, and the Invesco QQQ Trust (QQQ) moved 0.19% lower. Retail sentiment for SPY on Stocktwits shifted to bullish from extremely bullish over the same period.