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Even if economic forces support a “no-landing” scenario, the stock market could face a 10% correction, according to Ed Yardeni.
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Yardeni said retail sales in March were strong and the GDP growth rate for the first quarter was updated at 2.8%.
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“The U.S. economy is still at a high level because consumers didn’t get the recession memo,” Yardeni said.
The continued strength of the U.S. economy supports a “no-landing” scenario, but that doesn’t mean the stock market will avoid a 10% correction, according to market veteran Ed Yardeni.
Yardeni said in a note Monday that despite the strong retail sales report, the S&P 500 index is at risk of testing its 200-day moving average around 4,700 in the coming months.
“It would be a classic 10% correction,” Yardeni said.
Yardeni said rising bond yields are starting to weigh on stocks, with the 10-year Treasury yield hitting 4.69% on Tuesday, its highest level this year.
This can be seen in the percentage of S&P 500 stocks trading above their 50-day moving average, which has fallen from last month’s overbought level of about 80% to about 30% now.
“There is increasing confidence that the S&P 500 index hit a short-term high on March 29th at 5,254.35. It has now fallen 3.7% from there to 5,061.82, and the “It is below the daily moving average.” “The market was overbought and may now be heading toward oversold.”
However, a healthy correction in the stock market should not discount the continued strength of the US economy.
Yardeni said the Federal Reserve’s first-quarter GDP growth forecast was 2.4, higher than previously expected, after strong retail sales data for March, which was more than twice what economists expected. % to 2.8%. The Fed later raised its GDP growth forecast to 2.9%.
“The U.S. economy remains strong because consumers don’t understand the recession memo. Consumers continue to spend because their real disposable income is rising and more Americans are spending. Because they have the means to retire and retire comfortably, and because there are more than 6 million “new entrants.” “They’re consuming it here instead of south of the border,” Yardeni said, adding that the influx of immigrants is contributing to the growth of the U.S. economy.
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