Will The Bull Rally Continue In 2025? | Ed Yardeni

**Ed Yardeni** (0:01)
Without an outlook for a recession causing a bear market, I think worst case scenario is a correction, which is 10 to 20 percent, not 20 percent or more. And I don't even think we'll get 10 to 20 percent, because I think earnings are going to be quite good. And so I think we'll have an earnings-led bull market, because I think maybe what the Fed just did is taking some of the steam out of the valuation-led bull market.

**Adam Taggart** (0:37)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Well, this interview is being recorded the day after the Federal Reserve spooked markets by slowing the expected pace of future rate cuts. The S&P instantly dropped 3% on the news, and bond yields spiked. Is this just temporary heartburn as the markets digest the news? Or might this signal that markets have just peaked? For perspective, we're fortunate to be joined by Dr. Ed Yardeni, president of Yardeni Research. Ed, thanks so much for joining us today.

**Ed Yardeni** (1:10)
Thank you, Adam.

**Adam Taggart** (1:12)
All right, Ed, well, look, a lot of questions for you, but I got to start with the obvious one. What just happened?

**Ed Yardeni** (1:18)
Well, look, I think the market got overbought, sentiment got overly bullish, there are too many bulls around, and a lot of people were expecting that the Fed would be lowering interest rates at three, maybe four times next year, and the Fed announced that they were cutting by another quarter, that they'd lowered it by 100 basis points, that they'd lowered the Fed funds rate by 100 basis points since September 18th, and that was getting them closer to what they view was the right level of the interest rate, the neutral rate, and that would keep the economy growing with full employment and subdued inflation. So I think it was just, sentiment was too bullish from a contrarian perspective, the market was set up for a sell off, and that's what we've had. And I think now the market is going to focus in on some of their potential negatives up ahead here. Coming out of the election, the perception was that Trump 2 on balance will be bullish. But now there's a recognition that it may be easier said than done. In addition to the Fed announcing that they were going to probably cut the two instead of four, next year instead of cutting two by four for the Federal funds rate, we also had news out of the circus in Washington DC, confirming that it's still a circus. Which means that they're stumbling over continuing resolution, and if they don't get their act together, the government presumably will shut down. But we've seen these dramas before and they punt, they come up with some way to postpone the problem.

**Adam Taggart** (2:58)
Okay, so I want to ask you some questions about one of the quick takes that you publish for your quick take service. The most recent one just came out this morning is called, Is It Too Late to Panic? I want to get into that a little bit with you, but let me just set the table first, Ed. Sure. You're generally known as a fairly bullish guy, fairly optimistic guy, and that has certainly proven to be the case for the past two years as you have been bullish. You've stuck to your gun, so kudos to you.
Does this, I mean, the Fed basically delivered on what everybody was expecting. It cut rates by a quarter percent, but does this sort of nod to, hey, we're probably going to be cutting more like only twice next year versus maybe four times like the market might have been expecting. Does that make any sort of seminal change for you in your outlook for next year?

**Ed Yardeni** (3:58)
And really, because before the Fed started cutting on September 18th, back in August, we were arguing that the Fed should hold off on lowering interest rates because the economy looked quite resilient to us. Inflation was continuing to moderate. In other words, they were achieving their dual mandate at the level of interest rates, that we had. They're supposed to get the unemployment rate down to full employment, which I think is 4% and we're basically around there. And they wanted to get inflation down to 2% and they certainly got closer there. And I felt there was no need to rush to lower rates, especially since they weren't really quite at 2% on inflation. But they just, Adam, they just didn't listen to me. They just went and did what they wanted to do.

**Adam Taggart** (4:47)
What's wrong with those guys?