Longtime Wall Street strategist Ed Yardeni, president of Yardeni Research, raised his S&P 500 (^GSPC) price target to 5,800 from 5,400. He joins Market Domination Overtime to discuss why he remains bullish on the S&P 500 despite investors trading away from tech.
Yardenis is hopeful about a Federal Reserve rate cut in September. He also is hopeful about earnings. “What I’m looking for is a very strong second quarter earnings season… I think a lot of companies that are not technology companies are going to tell us how they’re using AI to cut their costs and increase productivity,” he says.
When it comes to the labor market, Yardeni sees “normalization,” adding “When I put it all together, I’m not really that concerned about downsides for the economy. I’m not concerned that inflation is going to remain sticky.”
For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.
This post was written by Nicholas Jacobino
Video Transcript
S and P 500 pulling back from its record today as investors rotate at a tech, but our next guest is still bullish overall, raising his target for the S and P 500 to 5800.
And joining us now is Ed Yardeni Yardeni Research President, Doctor Ed.
It is always good to have you on the show.
So you raise your target uh to 5800.
How come walk us through the reasons?
Well, I I’m becoming increasingly convinced as the market has that uh the FED is in fact gonna start uh cutting interest rates.
Uh As you recall, at the beginning of the year, there was a lot of expectations that there might be six or seven rate cuts that never happened.
I think this uh next rate cut that’s expected in September is gonna happen.
And I think over the past couple of days fed chair Jerome Powell, uh kind of went out of his way to uh you know, hint and wink that uh if, if things keep going uh well on the inflation side and they continue to be somewhat concerned about what’s going on in the labor market side.
They’re gonna lower rates.
Uh, and, uh, as we saw today, uh, the market, uh, as a result started to broaden out to the SM cap to the small and mid cap stocks.
So, but I think all in all what I’m looking for is a very strong second quarter earnings season.
We’re about to get reports tomorrow, we get the banks.
I think the banks are gonna wind up, uh, reducing their loan loss provisions because there is no recession out there.
So I think they’re going to surprise us to the upside.
And then I think a lot of companies that are not, technology companies are going to tell us how they’re using A I to cut the cost and increase productivity.
They’re not gonna necessarily say that it’s making a huge change in their earnings outlook.
Uh, but I think they’re gonna indicate that it could very well be an important development.
Um Ed, it’s truly here.
The conventional wisdom has always been, um that if the fed was cutting rates, not because there was some sort of, you know, overturning in the economy, but rather to bring us back to normal, that stocks could continue to rally in the face of that.
But are there any concerning signs for you?
I mean, we are seeing a little bit of deterioration in the labor market.
You have some companies today talking about consumer weakness, right?
We’ve had a couple of guests today, bring up credit card delinquencies ticking up.
How concerned do investors need to be about those various elements?
Well, I think uh it’s important to put it in the context of recent history.
We, we did have this uh amazing uh event, not, not a happy one, uh which is the pandemic and a lot of things that really had some abnormal uh developments as a result of that, particularly the labor market.
And I think what we’re seeing is normalization.
I think we’re getting back to normal uh in the labor market.
And uh I think we’re getting back to normal and with, with interest rates, we certainly are, have gotten back to normal with inflation.
So when I put it all together, I’m not really that concerned about the downsides for, for the economy.
I’m not concerned that inflation is gonna remain sticky.
Uh And I think, uh you know, I’m gonna listen to what uh F Powell said and then that’s pretty strongly suggested that they’re gonna start cutting rates in September.
That’s all good for the bonds.
It’s all good for the stocks.
Uh uh you know, when it comes to the stock market, skeptics, they um they’ll throw, throw their uh yellow flags, they always do it right.
And, and there’s a couple of you here and I wanna get your take, you know, they’re, they’ll talk about sentiment, they’ll say too many bulls and they also talk about valuation.
This market just doesn’t look cheap.
How do you answer?
Those two.
Well, I look, uh, when, when you get too many bulls, uh, you are more vulnerable from a kind of a sentiment perspective to see some sort of correction.
Uh, because when you have too many bulls, there are just not enough bears to, to convert over to the bulls and everybody presumably has, has bought.
And if you get some bad news and some of the weak bulls start to panic and, and, and get out.
So it’s conceivable that there could be a correction uh in, in the works here as a result of sentiment.
Uh But on the other hand, I think it’s very important to recognize that there’s $6 trillion sitting in money market, mutual funds has been fairly satisfied earning 55 and a quarter percent on uh on, on their money, people in those accounts.
Uh And I think if they start to perceive that uh interest rates really are coming down, uh then you may see more money going into the bond market and into the stock market, uh offsetting the canarian perspective that too many bulls is bearish.
Um uh I wanna ask you as well about the election.
Um And the sort of lack of reaction there has been uh in the markets, right?
I mean, if you look at the front pages of most of the non financial papers, they will be focused on what’s going on with President Biden and the re election campaign.
Um when do you think maybe what, what would be a trigger for that to change, for the markets to start paying more attention?
Well, it’s a great question.
I don’t really have the answer to it.
But, uh, II, I have observed, I think we’ve all observed and, and your question implies that the market has done remarkably well despite the political partisanship, be, be, besides all the turmoil we see going on in, in Washington.
And I think, I think investors, whether they’re uh conservative or liberal Democrats or Republicans have learned over the years that you don’t wanna let politics determine your investment uh approach.
Uh So for example, uh if, if you were a big fan of uh Obama, um then you probably were low, the market then, but if you weren’t, you, you might not have been in the market at all and missed a very good bull market.
Same thing happened with Trump.
Uh And again, with Biden, uh we’ve, we’ve had very partisan uh white houses uh where half the country like the president, half didn’t.
Uh And yet the stock market just keeps going up.
And I think that speaks to the strength of the economy.
It speaks to the fact that, you know, Washington doesn’t matter for everything going on in our economy.
There’s a lot of us working stiffs that are going into the office and to the factory or wherever, every single day, working hard, trying to make things better and uh on balance.
Uh we, we succeed and offset the meddling of Washington.
Ed.
You raised your target on the market.
I’m just curious which sectors, uh you find attractive here, Ed, what are you telling clients?
Well, I’m, I haven’t changed much in that score.
I’m still talking about technology, financials, uh industrials and even energy as a sort of a shock absorber in the event that there is a shock out of the Middle East or Russia Ukraine that leads to higher oil prices.
But uh generally speaking, uh growth is still where I want to be Ed.
Thank you so much.
Appreciate it.
Thank you.