The stock market caught a breather on Tuesday, paring some of its gains after a six-day rally pushed the S&P 500 above 4,500 for the first time since July. But Ed Yardeni, founder of Yardeni Research, believes there is more upside ahead for investors. “A move higher to match the record level is conceivable either by the end of the year or sometime next year,” he wrote in a Monday note to clients.
The veteran market watcher has been bullish all year, arguing that raising interest rates by the Fed would tame inflation without sparking a job-killing recession — an outcome known as a “soft landing.” He even set an end-of-year price target on the S&P 500 at 4,600 at the beginning of the year when many investment banks were nervous about the potential impact of rising interest rates on corporate earnings (the average price target on Wall Street was just 4,050).
Now, Yardeni, who spent decades leading investment strategy teams at Deutsche Bank and other Wall Street giants, says even his 4,600 target may have been “too conservative.” While the Fed’s rate hikes have significantly increased borrowing costs for businesses and consumers since March 2022, the labor market, consumer spending and industrial production have proven resilient — and with inflation fading, there is no need for further rate hikes, he said. He said.
“The economy is growing despite Fed tightening,” he wrote. “Fed officials believe they can stop raising the federal funds rate if inflation continues to slow and economic growth continues to slow, which is exactly what is happening.”
Yardeni pointed to October’s flat reading in the Concurrent Economic Indicators Index (CEI), which measures current economic activity, as evidence that the economy is slowing but not collapsing under the weight of rising interest rates. “The deceleration in the CEI is consistent with our soft landing scenario,” he wrote.
Yardeni points out that with low inflation, technological innovations such as artificial intelligence are expected to create a productivity boom in the coming years, which could lead to a decade of growth and huge returns in the market. “The stock market’s vertical rise since October 27 (the most recent corrective decline) is more consistent with a roaring 20s scenario led by technology and productivity,” he wrote.
Two recent inflation reports that were cooler than expected, lower oil and gasoline prices, and surprisingly strong growth in GDP per capita GDP have many experts feeling optimistic this holiday season.
said James Demert, chief investment officer at Main Street Research luck Late last week, he believed that the Fed’s inflation and rate hike campaign was “over.” He said: We have entered a new bull market that will be led by artificial intelligence stocks such as Microsoft and chip makers Nvidia and AMD. Solita Marcelli, chief investment officer for the Americas, of UBS Global Wealth Management, said she also expects stocks to continue to rise this year.
“The recent S&P 500 earnings season signaled a return to earnings growth after three quarters of contraction,” Marcelli wrote in a note to clients on Monday. “Our base case is for more modest gains for stocks in 2024, with the S&P 500 ending the year near 4,700.”
However, she warned that there are a lot of potential threats to the stock market out there. If there is any sign that inflation is heating up again, markets “could be unsettled” by the possibility of interest rates rising again.
Marcelli added: “The wars between Russia and Ukraine and between Israel and Hamas have the potential to cause volatility.” “The US presidential election is taking place against the backdrop of an increasingly dysfunctional budget process.”