Fundstrat
Fundstrat's Tom Lee: Why Stocks Can Keep Rallying Even With a Government Shutdown
10/6/2025, 12:53:05 PM
Economic Summary
- AI capex is a major structural tailwind expected to lift corporate investment and earnings, particularly in tech (NVDA) and firms adopting AI.
- The Fed has been effectively on hold for nine months and a "doubish" posture (leaning dovish) increases chances of rate cuts, which would boost financials, small caps, and cyclical sectors.
- ISM manufacturing has been below 50 for 31 months, signaling prolonged contraction; a move above 50 would mark expansion and likely lift earnings and cyclicals.
- A government shutdown acts as a drag on GDP and confidence, forcing the Fed to be more dovish than planned and potentially supporting risk assets despite weaker fundamentals.
- Seasonality (Q4 historically +~5%) and muted investor sentiment after a large rally create a setup where gains could continue if macro headwinds remain manageable.
Bullish
- AI-driven capex tailwind should boost tech earnings and investment (e.g., NVDA).
- Fed 'doubish' stance increases odds of eventual rate cuts, helping financials and small caps.
- Seasonal Q4 historically adds ~5% on average, supporting near-term equity gains.
- Financials can leverage AI and blockchain to cut costs and increase profitability (benefits JPM, XLF).
- Ethereum ecosystem and large stablecoin usage (Tether) demonstrate blockchain efficiency tailwinds.
Bearish
- Prolonged ISM <50 (31 months) implies ongoing manufacturing contraction and weak business confidence.
- A government shutdown disrupts GDP and consumer/business confidence, weighing on economic activity.
- Ongoing US-China trade tensions and tariffs could derail seasonality and corporate earnings momentum.
- Fed uncertainty from missing data reports increases policy risk and market volatility.
Bullish tickers
NVDAJPMXLFETHTETHER
Bearish tickers
NVDAJPMXLF
NVDA
Bullish
AI-driven capex tailwind supports Nvidia; noted at ~26x earnings with upside into year-end.
Bearish
Valuation concerns after a large rally; could be vulnerable if macro or demand weakens.
JPM
Bullish
Major bank beneficiary of a financials rally and potential blockchain efficiencies improving profitability.
Bearish
Large legacy cost base could limit near-term margin upside versus leaner blockchain-native competitors.
ETH
Bullish
Ethereum provides the blockchain foundation for efficiency gains and corporate builds, seen as a structural tailwind.
Bearish
Speaker acknowledges personal bias; crypto adoption and regulatory risks remain uncertainties.
TETHER
Bullish
Largest stablecoin; example of blockchain enabling bank-like scale with far fewer employees, highlighting efficiency gains.
Bearish
Comparing Tether's valuation to banks may be misleading given different business models and regulatory status.
XLF
Bullish
ETF proxy for financials poised to benefit from dovish Fed, steeper yield curve, and AI-driven efficiency.
Bearish
Financials remain sensitive to macro risks, rate-path uncertainty, and cyclical headwinds.
BITMINE EMERSION TECHNOLOGIES
Bullish
Company is building an Ethereum treasury, signaling commitment to blockchain integration.
Bearish
Potential conflict of interest noted; private company exposure to crypto risks and execution challenges.
People mentioned
FrankTom