The bull market is officially two years old, and as investors head into the third year, Yardeni Research President Ed Yardeni explains what could lie ahead.
Yardeni expects earnings to continue to push the market higher, especially as valuations are “already stretched.” He adds that if valuations increase, it may spark a melt-up, which he tells Yahoo Finance, “You can make a lot of money still from here. But then you got to figure out when to get out. And then you have to get out pretty significantly.”
Overall, he expects earnings to drive market growth and support a bull market: “I’m thinking that the market goes up on earnings and that earnings, which were probably about $250 a share this year, go up to $275 a share next year, and $300 a share the year after that. By the way, by the end of the decade, I think we could be at $400 per share, which times a 20 multiple or so gets us to 8,000 on the S&P 500 (^GSPC). So I think it’s still a bull market.”
With this market backdrop, Yardeni explains that he is Overweight on technology (XLK), industrials (XLI), and financials (XLF). On the other hand, he is “not too keen on” utilities (XLU) and other interest-rate-sensitive areas: “We don’t think interest rates are going to come down as much as the market has been discounting.”
Watch the video above to hear what Yardeni thinks about the bond market (^TYX, ^TNX, ^FVX).
To watch more expert insights and analysis on the latest market action, check out more Market Domination Overtime here.
This post was written by Melanie Riehl
Video Transcript
We’re looking at this bull market that is two years old.
So entering its third year, bespoke out with the fun chart today, looking at other bull markets that reached 503 trading days and how they did and what about average in terms of how much we’re up about 63%.
So now as we go into the third year of the bull market, if we’ve, if we’ve already priced in all that good news, what’s gonna be the thing that continues to push the market higher?
I’m quite sure it’ll be earnings.
Uh I hope it’s not valuation multiples because as I said, they’re already stretched, they’re kind of getting close to where they were back in 1999.
Uh The for pe is at 22 it got to a peak of 25 back then the buffet ratio which is the S and P 500 price index uh to revenues at 2.8 and back then it got up to I think 2.2.
So we’re at a record high on the Buffett ratio.
Buffett always said that, you know, when that ratio gets to two, he’s a seller and that’s apparently what he’s doing.
He’s following his rule of thumb.
Uh So the valuations are stretched.
I don’t want to see them going higher because then we got a 1990 melt up scenario and that’s fine.
You can make a lot of money still from here.
But then you got to figure out when to get out and then you have to get out pretty significantly.
Uh I’m thinking that the market goes up on earnings and that the earnings which were probably about 2200 and $50 a share this year go up to 10 $275 a share next year and $300 a share the year after that.
And by the way, by the end of the decade, I think it could be a $400 per share which times, uh, 20 multiple or so gets us to 8000 on the S and P 500.
So I think it’s still a bull market and like you said, it’s kind of the middle of the pack bu bull market so far and it still could go a while, a while longer.
It could go through the end of the decade.
So given, uh, uh, kind of your, your views here of the economy earnings, what would you be avoiding?
You know, would it be defensives, staples cash?
Well, uh, we turned the bullish in late October of 2022.
So we’ve been bullish for a while and we were recommending overweighting technology and communication services that’s worked.
Uh We’ve been recommending overweighting industrials that’s worked and financials that’s worked not energy, energy we thought would be a good uh a shock absorber in the event of geopolitical risk.
So three out of four ain’t bad, but we’re still there.
We’re still overweighting technology.
Financials and industrials don’t mind really having some consumer names since within the consumers are still in, in pretty good shape.
Uh, but not too keen on uh utilities, not too keen on interest rate sensitive because we don’t think interest rates are going to come down as much as the market has been discounting.
Same thing happened at the beginning of the year.
The market was expecting six or 725 basic rate cuts.
Uh We were expecting two at most, uh maybe three but uh we didn’t, uh we didn’t jump in with the market thinking the fed was gonna have to lower interest rates a lot.
Well, ed sort of on that point as well with the 10 year treasury above 4% and seeming like it’s gonna stay there for a little bit.
One of the areas that in the past that had been problematic for was technology.
Is it still problematic for technology?
Is that a concern of yours at all?
Not really?
I mean, to me, 4% is normal.
Uh This is uh all about normalization, in my opinion.
I know a lot of people, uh logically thought that with the FED funds rate going from 0 to 5 and a quarter percent in less than two years that that inevitably would cause a recession.
We were not in that camp.
Uh We were in the no landing camp uh since 2022 since the FED started raising interest rates.
And our view was that 4% 4.5% is kind of where we were before the great financial crisis.
We finally normalizing the real abnormality was uh no, zero interest rates, quantitative easing between the great financial crisis and the great virus crisis.
Uh So with the economy has demonstrated that it can, it’s resilient and it could certainly deal with 4% bond yields.
Ed.
Good to see you.
Thanks a lot.
Appreciate it.
My pleasure.