Ed Yardeni believes stocks will soar as inflation recedes, the Federal Reserve finishes raising interest rates, and AI advances at a breakneck pace. The renowned market watcher and founder of Yardeni Research expects the S&P 500 index to rise nearly 30% to 6,000 by 2025.
“Christmas is two weeks away. This year’s Santa Claus Rally started early…Will it continue until Christmas? Will the rally continue until the end of this year, and perhaps into late 2024 and even 2025?” he said on Sunday. I joked in my notes. “We think so.”
That’s a bold call. After all, the S&P 500 has returned about 10% annually to investors since its creation in 1957, a figure that has increased since the global financial crisis and the zero interest rate to stimulate the global economy after the pandemic. It was boosted by a significant rise in stock prices when held close. economy.
But on Sunday, Yardeni said there was “more reason to believe” in a “Roaring 2020s scenario” in which productivity soars amid rapid technological change and living standards improve globally. And it makes sense to be careful. When it comes to market forecasting, Yardeni is on a roll.
some impressive predictions
In early October, the S&P 500 index was emerging from a 7% correction after hitting a high of 4,588 at the end of July. The blue-chip index was still up more than 10% from a year ago, but the pullback wiped out bearish analysts who had predicted a disastrous year for stocks due to rising interest rates.
Ed Yardeni then made a contrarian call. He argued that the S&P 500 index would fall below its 200-day moving average of $4,200 in October, followed by a “Santa Claus rally” to $4,600 by the end of the year.
The prophecy was an eerie one. As Mr. Yardeni predicted, by October 27, the S&P 500 index had fallen to 4,117. And since then, his Santa Claus rally has become a reality, with his stock soaring to more than 4,600 shares on the back of strong financial results and falling inflation.
Signs that the “roaring 2020s” are becoming a reality
While many Wall Street veterans have been cautious throughout 2023, arguing that rising interest rates will slow the economy, Ed Yardeni has been at the forefront of the bulls. His optimistic, and now seeming rather prescient, outlook is based on several key factors: slower inflation, lower interest rates, and technological innovation.
decline in inflation
First and foremost, Yardeni said Sunday that “lower-than-expected inflation could accelerate Santa’s sleigh,” which would keep stocks rising in 2024. High costs have hampered business and slowed consumer spending over the past few years, but that could change in 2024.
Inflation has fallen from a peak of over 9% in June 2022 to just 3.2% in October. And Yardeni pointed to the Cleveland Fed’s inflation numbers, which could be even lower in November due to lower gas and rent prices. inflation nowcasting The model shows inflation in November to be just 3%.
Americans’ expectations for inflation, which economists say is important in keeping consumer prices in check, have also fallen recently. Last month, median short-term inflation expectations fell to the lowest level since April 2021 (3.4%), according to the . new york federal reserve.
lower interest rates
Lower inflation means lower interest rates, which should be a boon for the market, Yardeni said. Rising interest rates are making borrowing costs increasingly painful for many U.S. companies in 2023, but that pain may soon end.
Mr. Yardeni is confident that Federal Reserve Chairman Jerome Powell, who has long been hawkish, is ready to soften his stance and even hinted at the possibility of a rate cut. Chairman Powell is scheduled to speak after the Federal Open Market Committee (FOMC) meeting on Wednesday, and Yardeni believes there will be some dovish remarks. “The President has indicated that if inflation continues to trend toward the Fed’s 2% target next year, the FOMC will likely lower the federal funds rate to avoid further tightening of the real federal funds rate,” he said. Our prediction is that they will approve.” . “That would be bullish.”
Don’t forget to foster innovation
Slowing inflation and lower interest rates are the ideal recipe for a rising stock market, barring a cooling economy that could lead to a full-blown recession. But Ed Yardeni’s Roaring 2020s prediction is more about long-term technological innovation than short-term economic trends.
Yardeni said this year that OpenAI’s ChatGPT release in November 2022 will beThe roaring 2020s” He foresees an era where AI will increase productivity, reduce costs, and improve living standards around the world. This is in stark contrast to some on Wall Street who believe the hype surrounding AI is overblown.
And it’s not just AI. Yardeni believes in innovation. robotics, gene editingand quantum computing This decade will help usher in a new era of global economic growth.A veteran market watcher predicted that CNBC interview This summer, his fellow economists will look back on this time in 2030 and say, “It started out bad, but it ended up really good.”