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Welcome back to Squawk Box. Futures are lower this morning, but we had some some positive action on Friday and the S&P back above 7,700 uh on Friday. Joining us now Tom Lee, head of research at Fundstrat, chief investment officer of Fundstrat Capital, as well as a CNBC contributor. The latest data point that uh you're interested in, Tom, was that uh that unemployment or that employment report which in your view uh means that the previous one in August might have been a little bit of an outlier.
And from that you glean that any inflationary pressures from the labor market are unlikely. So, you're back to thinking if if oil gets under control, inflation might not continue to be a problem. Yes, good morning, Joe. That's right. I think going into last week's job support, the market had been working with a maximum hawkish Fed, one that was going to raise three times, including a 75% chance of an October hike.
This job support has been softer. Um we get an inflation report in 2 weeks for September. It does, in our view, bu- we believe there's these one-offs rolling off, and so I think there's if for the next 6 months, softer readings on inflation, and that allows not only the Fed to kind of walk back from its hawkishness, but I think it's going to allow bond yields to actually sort of normalize because there the inflation sort of uncertainty starts to ease.
And I think there's a lot of clues cuz I think tech stocks making new highs and crypto doing so well, these can't do well in the face of tightening monetary conditions. So, I think that they're anticipating easier financial conditions ahead. So, you're reading the tea leaves in in different uh markets for what's going on.
That would be significant, Tom. So, you think what when you said yields will normalize, what do you think a normal yield right now for the 10-year would be if there weren't these what you think I think are head fakes in in different markets? I think one number we can work with is before Jackson Hole, the 10-year was at 4.75% and I think anything under 5% would be interpreted by markets as really uh positive for risk on and I mean, I think there's a good chance in the next 6 months we're going to see yields below 5%.
You also are looking before the end of the year for maybe as much as 9% higher on the S&P. So, you got maybe 8,200, maybe 8,400 and you you call the current market, which I think once again you're you're you're you go so against conventional thinking all the time. You think this market is a coiled spring ready to go much higher, almost like it's been held back even though most people would think that it's sort out over its skis being boosted only by AI.
Uh yeah, I think we are in an unprecedented time because earnings growth is accelerating, something that many people would find hard to believe in their lifetime, but even Q3 earnings are probably going to come in at almost 30% growth. And PE sorry, EPS revisions from the start of this year to now for 2027 earnings are up more than 20% and the S&P is not even up 20%.
So, the the multiple actually has come down. If someone is thinking the market was expensive at the start of the year, it's actually gotten cheaper. Uh and then I think that ironically oil prices being high because the US is an exporter is actually strengthening the US economy. So, I I I know it's a very complex situation, but to me, I think there's excessive pessimism because not only is the earnings visibility good, but we're also getting leadership from the stocks that anticipate weaker inflation, which is tech and you know, crypto.
You also I think already at any time for a drawdown. That that could still come and you've been talking about that for a while. In fact, there is a one point you thought even a six handle on the S&P was possible before the end of the year and then it moved back to maybe the high sevens or eights on the S&P.
So, that would be a midterm sort of a freakout or what what would cause that? We do have the midterms getting closer and closer. I think it's what is it? It was 35 days. Did we Did another week pass by? Is it Is it 28? That's a zombie movie. 28 another 28 days. Is it only about 28 days away? Uh I mean I I think there is an expiration date for a correction partly because I think the midterms is a clearing event.
You know, that's probably going to be a very big risk on signal for markets regardless of outcome. And since June 30th, I think the markets have been tough. So, part of me thinks we've had a rolling correction and that's you know, we've had a lot of different groups in a drawdown. But as far as a bigger drawdown in markets, I'm still kind of holding a view that from mid-October to midterms is where speed speed bump could happen.
Mhm. I'm kind of reluctant to sort of be that declarative just because sentiment's been negative and I think when people are bearish, it's hard for markets to be over their skis because we know people are actually speaking with their sentiment and staying cautious. Right. That's the one thing that always uh that never changes, does it?
When things are staring you in the face that are that are negative or scary, that's that's what most strategists will use to predict what the market's going to do near term. They never learn. They never really learn that that there really is a discounting uh mechanism for the market. So, you said regardless of outcome.
So, if the if the Democrats were to take the House and the Senate, you don't think that that uh would would cause any consternation in the stock market? Um I think one Congress controlled by the Democrats would be viewed as gridlock. The AI stocks and crypto stalled because of midterms with the idea that Democrats don't support data centers and they don't support Clarity Act.
But our country and take is that after midterms the Democrats are going to start supporting data centers and Clarity Act because one, data centers are generally providing a lot of economic benefits to the community and Clarity Act had many Democratic supporters. So, I I think the AI stocks are going to benefit post-midterms because you know, the change in Congress is not is actually going to sort of greenlight some projects.
The you mentioned Bitcoin in reference to uh indicating maybe bond yields are at the top end of a range. You think that this is a full-blown bull market is back on for crypto and it's there was a four-year cycle bottom for Bitcoin. Uh that's right, Joe. I think many people have been sort of saying, "Hey, they're not going to buy crypto until the four-year cycle ends." That four-year cycle date is actually today.
So, today is the historical low for Bitcoin. Bitcoin and crypto generally generally lead the stock market. So, I think the resilience you saw in crypto in the third quarter is to me a leading indicator for how stocks will do in the fourth quarter, which is going to be pretty explosive. But crypto has tailwinds now because there's a tokenization movement that BlackRock, Fidelity, all the major firms are supporting.
And I think there's a narrative around agentic AI as we talk about superintelligence and trying to maintain their capabilities. Crypto is one of the important ways to keep humans in the loop. So, I think there's as Robin uh as Vlad of Robinhood says, there's a super cycle happening with around crypto.
Is Is either bit I don't follow it that closely. Has it been the You think 5,000 by the end of the year? Um what's the highest that that that It's got to be close to the highest it's ever been. And then 100,000 for Bitcoin by year end. Yeah, Ethereum's high last year was just under 5,000. I think it's going to reclaim that.
And Bitcoin's high was 120 last year. I think Bitcoin's going to close above 100,000 this year. Close above 100. Okay, Tom. Good to have you on First as it always is on uh early on a Monday morning. So, uh and recalibrate the way we're thinking. Perhaps. For for for fans of yours. Anyway, thank you. Appreciate it. Yeah, thank you. Okay. When we come back, the Supreme
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