Fundstrat’s Tom Lee has expressed optimism about the U.S. economy despite the ongoing government shutdown, citing two key factors that could drive investor confidence.
AI and Dovish Fed Could Spark Growth
In an interview with CNBC on Monday, Lee said massive investments in the artificial intelligence sector and the Federal Reserve’s dovish stance are “powerful tailwinds” for the economy.
The Fed’s 9-month pause on interest rate cuts until September kept the Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) below 50 for 31 consecutive months, Lee said.
Now the Fed’s dovish, which is basically a lifeline for the economy, he added.
He also suggested that once the cautious manufacturing sector crosses the 50 mark, the economy will shift back to expansion mode, benefiting financial stocks, small caps, and the tech rally.
Market Rally ‘Hated,' Fed May Ease Policy: Lee
Lee said a government shutdown disrupts economic activity and weakens confidence, necessitating a more dovish stance from the Fed.
“A shutdown makes people nervous, and so the Fed will have to be even more dovish… that’s why stocks can rally even more than they have already.”
He added that despite a 30% rally in stocks, investors have been really skeptical, ahead of the fourth quarter, leading to what he calls “the most hated V-shaped rally.”
Lee Counters Fed Caution
The Wall Street analyst’s comments come in the wake of his previous response to Federal Reserve Chair Jerome Powell’s assertion that stock prices are “fairly highly valued.” Lee had then urged investors not to view Powell’s comments as a warning sign, suggesting that such caution is typical of the central bank.
The bullish outlook also contrasts with billionaire hedge fund legend Paul Tudor Jones‘ warning of a potential “blow off” rally with a “really, really bad” end. Jones had pointed out similarities between today’s tech-heavy market and the late 1990s dotcom surge, cautioning that the current fiscal-monetary combination is unprecedented since the early postwar period.
Price Action
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ: QQQ) climbed 3.51% and 4.98% over the past month, respectively, according to Benzinga Pro data.
READ MORE:
Image via Shutterstock
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
