Ed Yardeni believes inflation is fading, the Federal Reserve is done raising interest rates, and, with AI advancing at a breakneck pace, stocks are set to soar. By 2025, the famed market watcher and founder of Yardeni Research sees the S&P 500 jumping nearly 30% to 6,000.
“Christmas is in two weeks. This year’s Santa Claus rally started early… Will it last through Christmas? Will the rally continue through the end of this year, and maybe through the end of 2024 or even 2025?” he quipped in a Sunday note. “We think so.”
That’s a bold call. After all, the S&P 500 has returned around 10% annually to investors since its creation in 1957, and those numbers were boosted by the massive rise in share prices after the Global Financial Crisis and pandemic when interest rates were held near zero to help stimulate the economy.
But Yardeni said Sunday that he is “seeing more reasons” to believe in a “roaring 2020s scenario,” where productivity booms and living standards rise globally amid rapid technological innovation. And it makes sense to pay attention—when it comes to market forecasting, Yardeni’s on a roll.
Some impressive predictions
At the beginning of October, the S&P 500 was coming off a 7% correction after hitting a high of 4,588 at the end of July. The blue-chip index was still up over 10% on the year, but the pullback brought bearish analysts who had predicted a dismal year for stocks due to rising interest rates out of hiding.
Then Ed Yardeni came out 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” up to 4,600 by year-end.
The prediction was eerily prophetic. By Oct. 27, the S&P 500 sank to 4,117, just as Yardeni had forecast. And since then, his Santa Claus Rally has become a reality, with stocks surging to over 4,600 amid strong earnings results and falling inflation.
The signs the ‘Roaring 2020s’ are becoming a reality
While many Wall Street veterans have been cautious throughout 2023 with rising interest rates slowing the economy, Ed Yardeni has been leading the bulls’ charge. His optimistic, and now seemingly quite prescient, outlook is based on a few key factors: fading inflation, falling interest rates, and a technological revolution.
Fading inflation
First and foremost, Yardeni said Sunday that “lower-than-expected inflation could turbocharge Santa’s sled,” leading stocks to continue rising in 2024. High costs have hampered businesses and slowed consumer spending over the past few years, but that could change in 2024.
Inflation has fallen from its June 2022 peak of over 9% to just 3.2% in October. And November’s inflation data could be even lower due to falling gasoline and rent prices, according to Yardeni, who noted that the Cleveland Fed’s Inflation Nowcasting model is showing just 3% inflation for November.
Americans’ inflation expectations, which economists believe are critical to controlling consumer price increases, have also fallen recently. Last month, short-term median inflation expectations sank to their lowest level (3.4%) since April 2021, according to the New York Federal Reserve.
Falling interest rates
Falling inflation means falling interest rates, and that should be a boon for markets, according to Yardeni. Rising rates have made borrowing costs increasingly painful for many U.S. firms in 2023, but that pain may be over soon.
Yardeni is betting that after years of hawkish rhetoric, Fed Chair Jerome Powell is ready to soften—even suggesting that rate cuts may be coming. Powell is scheduled to speak after the Federal Open Market Committee (FOMC) meeting on Wednesday, and Yardeni believes he will come across dovish. “Our bet is that he will acknowledge that if inflation continues to moderate towards the Fed’s 2% target next year, the FOMC will probably lower the federal funds rate so that the real federal funds rate doesn’t get even more restrictive,” he said. “That would be bullish.”
Don’t forget the innovation boost
Fading inflation and sinking interest rates are an ideal recipe for stock market gains, barring a dip from economic cooling into outright recession. But Ed Yardeni’s “Roaring 2020s” prediction is more about long-term technological innovation than near-term economic trends.
Yardeni has argued this year that the release of OpenAI’s ChatGPT in November 2022 might well have been the event that launched the “Roaring 2020s.” He foresees an era where AI will boost productivity, cut costs, and increase living standards across the globe—a sharp contrast to some on Wall Street who believe the hype surrounding AI is overblown.
And it’s not only AI: Yardeni believes technological innovation in robotics, gene editing, and quantum computing will help usher in a new era of economic global growth this decade. The veteran market watcher predicted in a CNBC interview this summer that his economist peers will look back on the current era in 2030 and say: “It started out awful, but ended up awfully good.”
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FAQs
Stocks could soar as much as 30% over the next two years, as long as "mob psychology" among investors doesn't spark a market meltdown, according to market veteran Ed Yardeni. The Yardeni Research president predicted the S&P 500 could jump to 6,500 by 2026, implying a 30% gain from the benchmark index's current levels.
What is the Fed Yardeni model? ›
The Yardeni model considers a broader range of fundamental and macroeconomic variables, including inflation, interest rates, and earnings forecasts, to determine stock market valuations. The Fed model primarily compares the earnings yield of stocks to the yield on Treasury bonds.
Is the stock market expected to go up in 2024? ›
The Big Money bulls forecast that the Dow Jones Industrial Average will end 2024 at about 41,231, 9% higher than current levels. Market optimists had a mean forecast of 5461 for the S&P 500 and 17,143 for the Nasdaq Composite —up 9% and 10%, respectively, from where the indexes were trading on May 1.
Will the stock market crash in 2025? ›
A recession in early 2025 could send the stock market tumbling 30%, strategist says. A recession by early next year could send stocks down 30%, says BCA strategist Roukaya Ibrahim. Continued unemployment and headwinds from China's limping economy will be drivers of a downturn.
How much will the S&P 500 be worth in 2025? ›
Meanwhile, the median streak of positive returns can extend to 17 months with a gain of 14%, based on historical data. That suggests the S&P 500 could trade to 6,000 by August 2025, and to as high as 6,150 by November 2025.
What is the Fed interest rate projection? ›
Importantly, the SEP projects that the Federal Funds rate will fall to 4.6% in 2024, 3.9% in 2025, and 3.1% in 2026. This implies three 25 basis point rate cuts in 2024. We are therefore lowering our Fed Funds forecast to four 25 bps cuts this year and another four 25 bps cuts in 2025.
What is the difference between bond yield and earnings yield? ›
Bond yields refer to the current yield that is the interest income on the bond divided by the market price of the bond. Earnings yield, on the other hand is the EPS of the stock dividend by the market price of the stock and shows how much the company is yields in the form of EPS returns.
Should I pull my money out of the stock market? ›
It can be nerve-wracking to watch your portfolio consistently drop during bear market periods. After all, nobody likes losing money; that goes against the whole purpose of investing. However, pulling your money out of the stock market during down periods can often do more harm than good in the long term.
Is 2024 a good year to buy stocks? ›
Analysts are projecting S&P 500 earnings growth will accelerate to 9.7% in the second quarter and S&P 500 companies will report an impressive 10.8% earnings growth for the full calendar year in 2024.
Which stock will boom in 2024? ›
Best Stocks to Invest in India 2024
| S.No. | Top 5 Stocks | Industry/Sector |
|---|
| 1. | Tata Consultancy Services Ltd | IT - Software |
| 2. | Infosys Ltd | IT - Software |
| 3. | Hindustan Unilever Ltd | FMCG |
| 4. | Reliance Industries Ltd | Refineries |
1 more row7 days ago
Analysts expect S&P 500 profits to jump 8% in 2024 and 14% in 2025 after subdued growth last year. Robust global economic growth may offer equities enough support to resume a record-breaking rally, even if bets on Federal Reserve interest rate cuts this year are completely abandoned.
What is the stock market projection for 2025? ›
The S&P 500 still has 30% upside between now and the end of 2025, according to Capital Economics. "Our end-2025 forecast of 6,500 for the index is premised on its valuation reaching a similar level to its peak during the dot com mania," Capital Economics said.
How high will the Dow be in 2025? ›
Long Forecast
| Year | Open, $ | Close, $ |
|---|
| December 2024 | 45370 | 46983 |
|---|
| December 2025 | 56472 | 59561 |
| January 2026 | 59561 | 56446 |
| December 2026 | 53164 | 51981 |
5 more rowsThe estimates from strategists put the median target for the S&P 500 at 5,200 by the end of 2024, implying a decline of less than 1% from Friday's level, according to MarketWatch calculations. Heading into 2024, the median target was around 5,000 (see table below).
What is the S&P 500 prediction for 2026? ›
Yardeni Research president Ed Yardeni has a 5,400 target for the end of 2024 but sees the benchmark hitting 6,000 in 2025 and 6,500 in 2026. To Yardeni, continued outperformance from the US economy, and an increase in productivity, will drive the upside in stocks.
Where to invest now in 2024? ›
Overview: Best investments in 2024
- High-yield savings accounts. Overview: A high-yield online savings account pays you interest on your cash balance. ...
- Long-term certificates of deposit. ...
- Long-term corporate bond funds. ...
- Dividend stock funds. ...
- Value stock funds. ...
- Small-cap stock funds. ...
- REIT index funds.
The Fed model, named after the Federal Reserve, compares the earnings yield of stocks to long-term interest rates. On the other hand, Ed Yardeni's eponymous model extends this comparison by incorporating corporate bond yields into consideration.
What is the Fed model formula? ›
The model
(1) E/P = Y, or, as is sometimes expressed, P /E = 1/Y. When E/P > Y, stocks yield more than bonds and are therefore a better buy; when E/P < Y, the opposite is the case. Only when (1) holds, according to this model, stocks are neither cheap nor expensive (relative to bonds).
What is the Federal Reserve valuation model? ›
The "Fed model", or "Fed Stock Valuation Model" (FSVM), is a disputed theory of equity valuation that compares the stock market's forward earnings yield to the nominal yield on long-term government bonds, and that the stock market – as a whole – is fairly valued, when the one-year forward-looking I/B/E/S earnings yield ...
What are the 3 key entities of the Fed? ›
There are three key entities in the Federal Reserve System: the Board of Governors, the Federal Reserve Banks (Reserve Banks), and the Federal Open Market Committee (FOMC).
