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It may not seem obvious why an attack on Israel that has killed hundreds, already led to retaliatory strikes, as well as possible regional war, would be good for stocks.
And, on Day 1, it doesn’t appear it will be, with futures on the stock-market contracts
ES00,
NQ00,
pointing to a weaker start.
Market Snapshot: Dow industrials point to triple-digit decline Monday as Israel moves toward ‘complete siege’ of Gaza
But Tom Lee, head of research at Fundstrat, believes there could be a silver lining.
He said interest rates should decline sharply in a “risk off” environment where investors are reluctant to buy assets perceived as relatively risky.
“The rally in bonds (also means falling rates) could break the ‘short the bond market’ fervor that has gripped the rates market for the past month, [since the Fed interest-rate meeting in September]. And as such, we believe a substantial decline in interest rates could happen with the 10-yr [Treasury note]
BX:TMUBMUSD10Y
backing off from the high 4.8%-ish ranges seen lately,” Lee said in a note to clients.
He acknowledged that what he writes may make people uncomfortable.
“It feels awkward to write about equity market impacts from the Israel-Gaza war. War is a tragedy and resulting in heart-breaking loss. And yet, in our view, we do not view this conflict as altering the underlying recovery in equities. And if interest rates decline, as is anticipated, this is supportive of equity valuation,” he said.
The U.S. bond market was closed Monday in observance of Columbus Day. Treasury futures
TY00,
though, were trading higher.
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