Ed Yardeni’s Bullish Outlook for the S&P 500: Earnings, Tech Advancements Fuel Growth
Veteran Wall Street investor Ed Yardeni is doubling down on his optimism for the S&P 500, raising his year-end target to 5,800 points. This represents a 6% surge from current levels and is driven by a strong belief in robust earnings growth and ongoing technological advancements. Yardeni’s bullish outlook extends beyond 2024, projecting the index to reach 6,300 points in 2025 and 6,825 points in 2026 under his "Roaring 2020s scenario," which he believes has a 60% probability.
Key Takeaways:
- Bold Earnings Forecast: Yardeni anticipates the S&P 500 to hit 8,400 points by the end of 2029, fueled by robust earnings growth driven by technological advancements like automation, robotics, AI, and cloud computing.
- Magnificent Seven and Broader Market Strength: Yardeni believes the "Magnificent Seven" tech giants will continue their strong performance, while the broader market will benefit from increased corporate profit margins driven by tech innovation.
- Near-Term Volatility: Despite the bullish outlook, Yardeni expects some near-term volatility due to the upcoming election cycle and anticipates the S&P 500 to fluctuate below its July 16 record high. He sees support levels around 5,450, the index’s 50-day moving average.
- Fed’s Restrictive Policy: Yardeni forecasts the Federal Reserve will cut interest rates by 25 basis points in September but maintain a restrictive policy for the rest of the year.
Earnings: The Foundation for Market Gains
Yardeni’s bullish outlook is strongly underpinned by his positive assessment of corporate earnings. He notes that the second quarter earnings season is progressing well, with the earnings-per-share (EPS) growth rate for S&P 500 companies soaring to 8.7% year-over-year during the week of July 25. He expects full-year EPS growth to reach 10%-12% year-over-year.
Looking ahead, Yardeni anticipates continued growth in S&P 500 forward revenues per share, which hit record highs with a 5.7% year-over-year increase during the week of July 18. He highlights that "that’s a solid increase considering that inflation has moderated significantly over the past year. The S&P 500 forward profit margin at 13.4% currently is almost back to its record high of early 2022."
The Magnificent Seven and the Broader Market
Yardeni remains confident in the continued strength of the "Magnificent Seven" tech giants, which he believes will continue to sport a high collective forward P/E, providing support to the broader S&P 500. He also believes that the forward P/E of the S&P 493 (the S&P 500 minus these seven stocks) could rise further, as corporate profit margins benefit from technological innovations like automation, robotics, AI, the cloud, and supercomputing.
Navigating Near-Term Risks
Despite his long-term bullish outlook, Yardeni acknowledges potential near-term volatility. He predicts the S&P 500 will fluctuate below its July 16 record high through the election period, finding support around 5,450, its 50-day moving average, thanks to strong corporate earnings.
Furthermore, while Yardeni forecasts the Federal Reserve to cut the federal funds rate by 25 basis points to a range of 5.00% to 5.25% in September and maintain it steady for the rest of the year, he believes the Fed doesn’t need to cut rates as he does not see a recession looming.
The "Roaring 2020s" Scenario
Yardeni’s "Roaring 2020s" scenario, which he assigns a 60% probability, suggests that the bull market will continue to ride the wave of technological advancements and strong corporate earnings. In this scenario, the S&P 500 would reach 6,300 points in 2025 and 6,825 points in 2026.
While this scenario represents a bold outlook, it remains highly dependent on a number of variables, including continued strong earnings growth, continued technological innovation, and a continued easing of inflationary pressures.
Yardeni’s Outlook: A Balancing Act
Yardeni’s bullish forecast offers a compelling perspective on the current market landscape. He highlights the strength of corporate earnings, the ongoing influence of technological advancements, and the potential for continued growth. However, he also acknowledges the possibility of near-term volatility, drawing attention to the upcoming election cycle and the Federal Reserve’s restrictive monetary policy.
Ultimately, investors should consider the range of potential scenarios, weigh the risks and rewards, and develop their own investment strategies based on individual goals and risk tolerance.
