Tom Lee, head of research at Fundstrat Global Advisors, believes earnings and valuations will become a priority in the coming weeks as much of the debt ceiling is lifted. “Now that we have the debt ceiling coming down, I think it’s really important for investors to focus on the key drivers of the markets, which is really important, and that’s the earnings surprise,” Lee told CNBC Pro. Friday, as signs emerged that an agreement could be reached. “It’s also going to be a valuation, and the valuation is really anchored or constrained by what the Fed banks are doing and the Fed is fighting inflation,” he added. President Joe Biden and House Speaker Kevin McCarthy agreed over the weekend to raise the debt ceiling. The compromise bill now awaits congressional approval, with next week’s deadline looming. Lee added that cooling inflation and the prospect of a Federal Reserve rate hike also provide additional opportunity for investors. “It’s not clear now when the Fed will actually stop and if they’re ever going to start cutting rates, but we do know that valuations have come down so dramatically that the cheapest groups are some things like regional banks, financials, and we think: “There’s still an opportunity to own banks, especially regional banks and industrials,” Lee said. He noted that while industrial stocks may seem “a bit hard to own” due to uncertainty around the economy, recent data on the manufacturing sector suggests a buying opportunity is emerging. Conversely, Lee said he is avoiding sectors such as utilities, consumer staples and many health care names that have rallied in recent months. — CNBC’s Michael Bloom contributed to this report.
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