Ed Yardeni Still Sees S&P 10,000 by 2029. So Why Is He Getting More Cautious?

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Justin J. Carbonneau (0:47)

Ed, good afternoon. Thank you very much for joining us once again on Excess Returns.

SPEAKER_2 (0:51)

Thank you.

Justin J. Carbonneau (0:52)

Since you came on with us last December, a lot of things have happened. We've had the war with Iran, oil has gone over $100 a barrel, the Fed is actually hiking interest rates now, and the 10 years over 5 percent. How are you making sense of everything that's happening in the market and underneath the surface?

Ed Yardeni (1:10)

Well, I think that first and foremost, the economy remains very strong. And the reason it remains strong is because consumers continue to do what they do best, which is consume. And capital spending is very strong because of AI. And oh, by the way, we have a very large federal deficit of $1.7 trillion over the past 12 months. So there's clearly a lot of cylinders working here to keep the economy growing. That in turn means that earnings have been very strong, actually surprisingly strong, so much so that I coined a term for it, and that is FIMO, Fabulous Earnings Momentum, to distinguish it from FOMO. FOMO is Fear of Missing Out, and that's what typically drives maybe melt-up scenarios.

You don't want to miss the rally that everybody else is making money in. FIMO is a much healthier driver of a bull market in stocks because it's earnings-driven. And we've had this very unusual situation this year, where earnings have been so strong that investors almost didn't believe it. And they haven't been doing it FOMO. They haven't been chasing earnings up, and the valuation multiples have actually been going down, but not as much as earnings have been going up. So we've had an earnings-led bull market. As a result, we've got to a new high a few days ago, a few weeks ago.

And meanwhile, that's all pretty impressive given that we continue to have problems in the bond market. And it was in mid-September that we suggested to people that they should proceed with caution in the near-term year because the price of oil, which had dropped a lot during the summer, and the memorandum of understanding between the US and Iran started to move higher again. So suddenly we had a situation where it became clear that the war wasn't over, that there were still disruptions in the oil market. And so higher for longer oil prices, around $90 to $100, meant stickier inflation for longer, which then means that the US, the Fed and other central banks around the world would have to continue to raise interest rates. And when short-term rates go up, that usually pushes bond deals higher as well.

So, I am starting to see more interest in the bond market and people I talk to, accounts I talk to, say that five and a quarter percent looks like a pretty good return on a 10-year bond. And I agree with that, but I think we're not out of the woods yet.

So, in mid-September, I pushed out my 8,400 target for the S&P 500 to the middle of next year and aiming for something like 7,900 by the end of this year. We're still very much bullish on the outlook for earnings and the stock market. I think we're getting close to a peak in the bond yields, but I want to get more with a stronger sense that that's the case. And all in all, the economy is doing well. And Zaysh is a little bit hot, but I think that will moderate me. I'm still talking about the roaring 2020s and an FSP 500 target of 10,000 by the end of the decade.

Justin J. Carbonneau (4:45)

You never know where these acronyms originate from, but what's great about this is the female, you've heard it here folks, if this thing catches on, it's going to be originate from Mr. Ed Yardeni.