Technically Speaking: Yardeni – The Market Will Soon Reach 4500

The strong economic recovery will not get interrupted by inflation or a credit crunch, and the market will soon reach 4,500.” – Ed Yardeni via Advisor Perspectives

After discussing BofA’s view of why the market could drop to 3800,  I thought it fair to discuss a more optimistic view.

BofA’s view of a market correction was a function of the more exuberant “optimism” in the market. To wit:

“This analysis is interesting, particularly when analysts are rushing to upgrade both economic and earnings estimates.”

Market Reach 4500, Technically Speaking: Yardeni – The Market Will Soon Reach 4500

“More importantly, investors are incredibly long-biased in portfolios, with equity allocations reaching some of the highest levels in history.”

Market Reach 4500, Technically Speaking: Yardeni – The Market Will Soon Reach 4500

What Subramanian questioned is whether all the “good news” is already “priced in?”

“Amid increasingly euphoric sentiment, lofty valuations, and peak stimulus, we continue to believe the market has overly priced in the good news. We remain bullish the economy but not the S&P 500. Our technical model, 12-month Price Momentum, has recently turned bearish amid extreme returns over the past year.”

So, with BofA’s context in place, what is Yardeni seeing so differently?


Yardeni’s Outlook

“Not only will the bull market in stocks continue with strong profits, but the bond yield will go to 2% by year-end and 2.5% to 3% next year.”

The basis of Yardeni’s forecast is that of a robust economic recovery that, in his words, was “much better than expected.” The other reasons supporting his optimistic view are:

  • Treasury Secretary Yellen and Fed Chair Powell want to step on the accelerator to get broad-based and inclusive maximum employment. The support is $120 billion per month of quantitative easing (QE) and low rates.
  • Once the Fed starts to taper its QE, it may be months before it raises rates.
  • The risks to the recovery are another round of the virus, which is unlikely given vaccines.
  • A credit crunch is problematic but hard to imagine given the liquidity in the economy. That liquidity gets bolstered by the $4 trillion growth in the money supply.
  • The stock market is at record highs, and performance expanded beyond a few technology stocks.
  • Is the market overvalued? Yes, but valuations are not insanely stretched.
  • We will get an increase in inflation, but to a large extent, it remains transient. 

The question, is whether BofA is correct that what Yardeni expects has already gotten priced into the markets? Given the massive advance from the 2020 lows, it is likely.

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