Ed Yardeni expects the US stock market to rise 30 percent in the next two years

According to market expert Ed Yardeni, it is quite possible that the US stock market will rise by around 30 percent in the next two years. However, an exuberance of AI investors would pose a risk to the stock market. Investors still remain confident about the market outlook.

• Market veteran Ed Yardeni expects the US stock market to rise 30 percent
• Mega tech stocks are booming in the S&P 500
• Investor expectations about market prospects exceed those of central bankers

If mob psychology among investors doesn’t lead to a market collapse, market veteran Ed Yardeni expects US stocks to rise by around 30 percent over the next two years. As Business Insider reports, the president of Yardeni Research predicts in a note to his clients that the S&P 500 could rise to 6,500 by 2026, which means an increase of approximately 27 percent compared to the current level of the benchmark index (as of March 1, 2024). .

“FOMO” Fear Brings “Meltdown” Risk?

His forecast is based on the assumption that the bull market in stocks will continue. According to him, certain risks still remain: Investors’ exuberance could go too far and thus lead to a “meltup” – the opposite of a “meltdown”, a “meltdown” – on the stock markets. During a “meltup,” investors suddenly start frantically buying stocks because they missed the beginning of the stock market’s upswing. The prices then continue to rise, which leads to more investors trying to jump on the bandwagon. As a rule, a “meltdown” follows a “meltup”.

AI is shaping Wall Street

According to Yardeni, risks like these can partly be attributed to the hype among investors about artificial intelligence (AI), because AI is also booming on Wall Street. In his opinion, the fear of missing out – also known as “FOMO” – is likely to drive stocks to new highs this year. In this context, he speaks of a “mafia psychology”: “Your followers will hate you for not confirming their enthusiasm. If that sounds more like mafia psychology than financial analysis, that’s because it is,” quoted Business Insider from Yardeni’s customer note.

Mega-tech stocks act as “major players” on the stock market

Yardeni has apparently already spotted signs of a “meltdown” in some hidden corners of the market. He goes on to say that industry analysts expect long-term earnings growth similar to previous collapses such as the dot-com bubble. The highest values ​​would go to the eight largest mega-cap tech stocks, whose long-term earnings growth hit a record high in late January. Other analysts may have warned that mega-tech stocks could reach overvalued levels. This could ultimately lead to a price correction in the market. According to Yardeni, the “Magnificent Seven” stocks, Apple, NVIDIA, Alphabet, Meta, Amazon, Tesla and Microsoft, now make up almost 30 percent of the entire S&P 500. These are therefore responsible for the majority of the stock index’s gains last year.

Investors remain optimistic

Yardeni’s note also shows that a stock market meltup is initially a good thing for investors. However, if a “meltdown” were to occur, the situation would become significantly less advantageous for them. “This would only be great for our bullish position until it isn’t. It’s always easy to spot ‘meltups’ in hindsight, as ‘meltdowns’ are a consequence of them,” warns Yardeni in his note. According to the market veteran, it is desirable that the bull market continues to run stable, but that there are no meltups or meltdowns. Despite concerns about possible extreme situations in the market, investors would probably remain fundamentally optimistic about the development of the stock market over the next six months. According to Yardeni, this confidence is reflected in the results of the AAII investor sentiment survey, with over 42 percent of investors saying they are positive about the market outlook. This optimism appears to stem from possible expectations of aggressive rate cuts by the Federal Reserve (FED), says Yardeni. Based on the results of this survey, investors appear to be expecting the Fed to cut interest rates by at least 100 basis points (1 percentage point) over the course of the year – an expectation that seems to exceed even that of central bankers themselves, according to Yardeni.

Editorial team finanzen.net

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