Here's a counterintuitive idea for you: war is good for the economy. Or at least, that's what Tom Lee, head of research at Fundstrat, is suggesting.
Speaking on CNBC's "Power Lunch" on Monday, Lee made the case that the ongoing conflict and the resulting surge in defense spending are playing a significant role in the economy's resilience and the stock market's continued rise. "The war is actually quite stimulative to the economy," he told host Brian Sullivan.
It sounds wild, right? War is destructive and costly. But Lee's argument has a specific economic mechanism. He explained that, while it "sounds counterintuitive," the increase in defense spending—potentially hitting $60 billion a month—is helping to absorb the blow from rising oil prices, which are adding roughly $12 billion a month to what households spend.
'War Is Actually Helping...'
"The war is actually helping earnings right now," Lee said.
He didn't ignore the pain at the pump. He acknowledged the burden of higher gasoline prices on families, especially with inflation still lingering. But he suggested the additional costs, which he estimated at $50 to $100 per family each month, aren't enough to derail the broader economy or corporate profits.
When asked what's moving the stock market, Lee pointed to the war as the most significant factor, one capable of creating "tail events on both sides." He downplayed the immediate impact of corporate earnings reports and interest rate chatter, arguing that the war's full effects aren't yet baked into market prices.
He also noted that markets have gotten tougher over the last five years. Repeated shocks, both globally and in the U.S., have made them more resilient. Instead of panicking at every headline, they're increasingly responding in a more measured, perhaps even numb, way.
Lee, Cramer See Upside Despite War Risks
This isn't a new tune for Lee. His latest comments echo his earlier prediction that the S&P 500 is heading to 7,300. He had previously argued that stocks could climb even if the war worsened and oil prices kept surging. His view seems to be that the conflict's economic impact might not be as bad as many fear.
Interestingly, Lee's perspective finds a strange bedfellow in CNBC's Jim Cramer. The "Mad Money" host has predicted potential market shifts if the war were to end. Cramer thinks a conclusion could lead to lower interest rates—specifically the 10-year Treasury yield—as inflation fears ease. He also expects a rebound in growth stocks as investors refocus on company fundamentals, and a rally in big bank stocks as worries over stalled Wall Street deals fade away.
So you have Lee saying the war spending is propping things up now, and Cramer sketching a bullish scenario for when it might stop. It's a fascinating two-sided look at how markets digest geopolitical turmoil.
As for recent action, the market seems to be shrugging off some of the anxiety. Over the past month, the Invesco QQQ Trust (QQQ) climbed 2.85% and the Vanguard S&P 500 ETF (VOO) gained 2.52%.
Lee's core argument boils down to a massive fiscal stimulus story. The government is pumping tens of billions into defense contractors and related industries. That money flows through the economy, creating jobs and orders, potentially offsetting the drag from consumers spending more to fill their tanks. It's a brutal calculus, but in the cold math of GDP, it might just add up.
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