Ed Yardeni, founder of Yardeni Research Inc., smiles during an interview with Bloomberg Television on August 31, 2017 in New York. Christopher Goodney-Bloomberg/Getty Images
Ed Yardeni believes inflation is easing, the Federal Reserve is done raising interest rates, and stocks will soar amid the rapid development of artificial intelligence. The famous market watcher and founder of Yardeni Research expects the S&P 500 to rise almost 30% to 6,000 by 2025.
“Christmas is in two weeks. This year’s Santa Claus rally started early… Will it last until Christmas? “Will the rally last until the end of this year and maybe until the end of 2024 or even 2025?” he quipped in a Sunday note. “We think so.”
This is a courageous call. After all, the S&P 500 has returned around 10% annually to investors since its inception in 1957, and these numbers have been boosted by the massive rise in stock prices following the global financial crisis and the pandemic, when interest rates were kept near zero to stimulate the economy. even more economic.
But Yardeni said on Sunday that he sees “more reasons” to believe in a “stormy 2020s scenario” in which productivity booms and living standards rise worldwide amid rapid technological innovation. And it makes sense to pay attention – when it comes to market predictions, Yardeni is on the rise.
Some impressive predictions
In early October, the S&P 500 experienced a 7% correction after reaching a high of 4,588 in late July. The blue-chip index was still up over 10% this year, but the decline brought out of hiding pessimistic analysts who had predicted a dismal year for stocks due to rising interest rates.
Then Ed Yardeni came with a contrarian call. He argued that the S&P 500 would fall below its 200-day moving average of 4,200 in October before experiencing a “Santa Claus rally” to 4,600 by year’s end.
The prediction was eerily prophetic. By October 27, the S&P 500 fell to 4,117, just as Yardeni had predicted. And since then, his Santa Claus rally has become a reality, with shares rising above 4,600 on strong earnings results and falling inflation.
The signs of the “Golden 2020s” are becoming reality
While many Wall Street veterans were cautious throughout 2023 as rising interest rates slowed the economy, Ed Yardeni was the leader of the bulls. His optimistic and now quite prescient outlook is based on a few key factors: easing inflation, falling interest rates and a technological revolution.
First of all, Yardeni said Sunday that “lower-than-expected inflation could boost Santa’s sleigh,” causing stocks to continue rising in 2024. High costs have hampered businesses and curbed consumer spending in recent years, but that could change in 2024.
Inflation has fallen from its peak of over 9% in June 2022 to just 3.2% in October. And inflation data for November could be even lower due to falling gasoline and rental prices, according to Yardeni, who noted that the Cleveland Fed’s Inflation Nowcasting model for November shows only 3% inflation.
Americans’ inflation expectations, which economists say are crucial to controlling rising consumer prices, have also fallen recently. According to the New York Federal Reserve, short-term median inflation expectations fell last month to their lowest level (3.4%) since April 2021.
Falling interest rates
Falling inflation means falling interest rates, and that should be a boon for markets, according to Yardeni. Rising interest rates have made borrowing costs increasingly painful for many U.S. companies in 2023, but that pain may soon be over.
Yardeni is betting that Fed Chairman Jerome Powell is ready to ease interest rates after years of hawkish rhetoric – and even hints that there could be rate cuts. Powell is scheduled to speak after the Federal Open Market Committee (FOMC) meeting on Wednesday, and Yardeni expects him to come across as dovish. “We expect he will recognize that if inflation continues to slow toward the Fed’s 2% target next year, the FOMC will likely cut the federal funds rate so that the real federal funds rate does not become even more restrictive will,” he said. “That would be bullish.”
Don’t forget about the innovation push
Declining inflation and falling interest rates are an ideal recipe for stock market gains, unless the economy declines into an outright recession. However, Ed Yardeni’s Roaring 2020 forecast is more about long-term technological innovation than short-term economic trends.
Yardeni has argued this year that the release of OpenAI’s ChatGPT in November 2022 may well have been the event that ushered in the “Golden 2020s.” He foresees an era in which AI will increase productivity, reduce costs and raise living standards around the world – a sharp contrast to some on Wall Street who believe the hype around AI is overblown.
And it’s not just about AI: Yardeni believes technological innovations in robotics, gene editing and quantum computing will help usher in a new era of global economic growth this decade. The experienced market observer predicted in a CNBC In an interview this summer, he said his fellow economists would look back on the current era in 2030 and say, “It started terribly but ended terribly well.”