• Ed Yardeni thinks the Fed will keep rates higher for longer
• Yardeni predicts that the current stock rally is likely to become the most hated bull market
• Artificial intelligence could trigger a boom in the “Roaring 2020’s”.
dr Edward Yardeni is the President of Yardeni Research, Inc. and provider of global analysis and advice on investment strategies and asset allocation. During his career, he has served as chief investment strategist at Oak Associates, Prudential Equity Group and Deutsche Bank’s US equities division in New York City. He was also chief economist at CJ Lawrence, Prudential-Bache Securities, taught at Columbia University’s Graduate School of Business, and was an economist with the Federal Reserve Bank of New York.
Yardeni on the Fed and interest rates
In a recent interview with CNBC, Yardeni spoke to “Squawk on the Street” on issues such as the market’s reaction to shifting Federal Reserve expectations and factors that have cushioned the pressure from higher interest rates. The market veteran warned that stocks’ strong performance this year could prompt the Fed to keep interest rates higher for longer – disappointing investors hoping for a rate cut any time soon. “The market has proved remarkably resilient, largely because the economy has been remarkably resilient,” Yardeni said in the interview. “They didn’t want to keep raising interest rates until something really serious happens and then they’re forced to cut rates,” he said of the Fed. “So I think they’re where they want to be – and I think they’re going to stay there.” Over the past 15 months, the Federal Reserve has raised interest rates from almost zero to more than 5 percent in a bid to stem inflation, which in 2022 nearly reached its highest level in four decades, Markets Insider said.
4 reasons why the current stock rally could become the most hated bull market
But even if the current market proves resilient, Yardeni says the current stock rally could become the most hated bull market in history. The market veteran gives four specific reasons for his assumption, as reported by Business Insider.
The first factor supporting his hunch is that the rally started “at historically high price-to-earnings multiples.” He emphasized that the bull market started in stocks with high valuations, not low valuations. “Historically, valuations at the end of bear markets have provided compelling opportunities,” Yardeni said. However, with valuations not falling to attractive levels during the recent bear market, many investors will likely have missed the bottoms as they waited for valuations to drop.
The second point that suggests the current stock rally could become the most hated bull market is the looming recession. In October 2022, the stock market bottomed out. Since then, headlines about an imminent recession have increased. However, the stock market does not let this stop it and continues to rise. Warnings from various US CEOs and business leaders failed to help lower stock prices. “Most despicable is that the cop is the chutzpah [jiddisch für Dreistigkeit, Anm. d. Red] carry on despite almost everyone agreeing that a recession is looming any day,” Yardeni said.
The banking crisis, which was also unable to derail the stocks, also speaks for Yardeni’s forecast. In just two months, the big three banks, Silicon Valley Bank, Signature Bank and First Republic Bank, all failed. Bank failures quite comparable to the bank failures of the great financial crisis of 2008, as the three failed regional banks had assets of more than $500 billion. And yet the stocks continued to rise. “Of particular concern to the public is that the S&P 500 has continued to rise since March 8, when the banking crisis began,” the market veteran said.
The final point Yardeni makes is the lack of participation from smaller stocks. The current stock rally is being fueled primarily by mega-cap technology stocks, which in turn means the hundreds of smaller companies that make up the S&P 500 are under-represented. “You’re noticing that the ratio between the equal-weighted and market-cap weighted S&P 500 has gone down… Such poor breadth is not the hallmark of young bull markets,” Yardeni said. He also notes that alongside the tech mega-caps, there are a variety of stocks that have risen to record highs in recent weeks and that positive earnings forecasts show a wide range.
Artificial intelligence could trigger the “Roaring 2020’s”.
Ultimately, however, Yardeni believes in the current bull market in the stock market, mainly because the advent of artificial intelligence could trigger a boom in the “roaring 2020’s”. “I think we’re just in the early stages of really integrating artificial intelligence,” Yardeni told CNBC. “With robotics, with automation, all of this tends to increase brain productivity. In previous productivity booms, we’ve increased muscle and horsepower productivity, while that will complement our brain’s ability to think faster and wake up faster ideas to come up.”
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