SPX Rally to Continue? Ed Yardeni Flags Hikes, Backs Energy

**SPEAKER_1** (0:00)
All right, let's move on to our next guest, and welcome in Ed Yardeni, President Yardeni Researcher. Good morning to you, Dr. Yardeni. So nice of you to join us. Hope you had a lovely weekend. Let's just start with this 8250 year-end target on the S&P 500 I mean, that is a street high alongside Morgan Stanley, which I think is at 83
Just talk us through what gets us there.

**Ed Yardeni** (0:23)
Well, we've been in a earnings meltup, an earnings lead meltup, and that continues, and that's really what continues to drive the market higher.
Basically, I'm looking for the market to anticipate that the outlook for earnings will continue to be very good next year. Now, obviously, along the way, there are going to be some pullbacks and some volatility. But all in all, the market has continued to be impressed by much better than expected earnings. I've kind of dubbed it Fimo, which is fabulous earnings momentum as opposed to Fomo. In other words, it hasn't been the valuation multiple that's gone up. We're not seeing that kind of irrational exuberance. We're seeing rational exuberance based on earnings being delivered by companies.

**SPEAKER_1** (1:14)
Yeah. I mean, we've certainly seen that backed by the earnings profile. It looks very strong even though things are looking a little bit stretched as far as the NASDAQ is concerned. Let's just switch gear more to the macro and what you've been saying about the Fed because you actually see the Fed raising rates at the July meeting. So you remain an outlier with that call.
What's the case for the Fed to hike at a meeting next month?

**Ed Yardeni** (1:38)
Well, the April FOMC meeting was pictured by the Fed Chair, Jerome Powell, in his press conference as being kind of leading towards maintaining their easing bias. However, when the minutes actually came out a couple of weeks ago, it turns out that the underlying theme in those minutes was actually fairly hawkish. There were more and more members who were saying that they should drop the easing bias.
A few even said it was time to move towards a tightening bias. I think they're going to have to move to a tightening bias at the June meeting coming up here in a few days. I don't think they're going to go from a easing bias to a neutral bias. I think they're going to go straight to a tightening, because the inflation has been more elevated. It's been spreading more. And in addition to that, the labor market is looking pretty good. So the risks are all on the inflation side right now, not on the employment side. And then I think they're going to have to follow that up pretty quickly with a rate hike at the July meeting. And of course, a lot will depend on what happens in the Middle East. And as of today, it's still the same old same old. There's still a war going on. There's isn't there may be a ceasefire, but it seems like missiles are still flying and the price of oil is up today.

**SPEAKER_1** (3:08)
Right. That's it. Would you be suggesting that it's one and done, Ed? Or would you be saying that there's more to come throughout the second half of the year?

**Ed Yardeni** (3:16)
I am hesitant to claim it's going to be one and done, because I think much will depend on what happens with the price of oil with the straight of our moose. And so I think it's going to be one just to maintain some credibility on the inflation side, and then have me back on the show and ask me again. I mean, I think we're all trying to be military strategists. And I think at the end of the day, we're finding that the art of the deal for Donald Trump isn't going all that smoothly right now in the Middle East.

**SPEAKER_1** (3:49)
Sure. And then how would the market likely react to a hike then? I mean, sooner rather than later? Because I mean, if you're maintaining an 8250 call on the S&P by year-round, do you believe the earnings would be strong enough and insensitive to a rate hike?

**Ed Yardeni** (4:05)
I think to a large extent, the United States right now clearly has a lot of advantages, particularly the fact that we are oil exporters. I think in the near term, we've obviously had a great run here in the market since March 30th, since the perception was that we're getting closer to an end to the war. Now I think a couple of events are coming together here that could create another pullback in the market.