On the surface, it may be perplexing to consider how an attack on Israel that has resulted in numerous casualties, retaliatory strikes, and the looming possibilities of a regional war could possibly be favorable for stocks.
Initially, the stock market futures contracts ES00 (-0.73%) and NQ00 (-0.89%) appear to indicate a weakened start.
However, according to Tom Lee, the Head of Research at Fundstrat, there could be a silver lining amidst this turmoil.
Lee suggests that in an environment where investors are hesitant to purchase riskier assets, interest rates are likely to experience a significant decline.
He explains that the recent rally in bonds, accompanied by falling rates, has the potential to break the prevailing sentiment of "shorting the bond market" that has dominated the rates market since September.
In a note addressed to clients, Lee acknowledges that discussing the impact of the Israel-Gaza conflict on equity markets might feel uncomfortable.
War is undoubtedly a tragedy resulting in heart-breaking loss. Nevertheless, he asserts that this particular conflict will not fundamentally alter the ongoing recovery in equities.
Furthermore, if interest rates decline as anticipated, it would provide support for equity valuation.
On Monday, Columbus Day, the U.S. bond market remained closed. However, Treasury futures TY00 (+0.53%) traded higher.