Ed Yardeni, founder of Yardeni Research, has been one of Wall Street’s biggest bulls in recent years. While many experts warn of a recession and debt crisis, Yardeni reiterated that we are in the midst of the “Roaring 2020s,” meaning inflation will recede and new technologies such as AI and robotics will increase productivity. He has repeatedly argued that this is the era that will trigger a boom. Last December, the veteran market watcher even predicted that the S&P 500 index would rise 30% to 6,000 by the end of 2025, given that the blue-chip index is up more than 10% since the beginning of the year. The price target seems less sensational.
But Yardeni reminded investors this week that even if the stock market reaches his lofty price target, it won’t rise in a straight line. “The stock market’s smooth rally to new record highs has been uneventful,” he said in a note to clients on Tuesday. “Still, we should expect some turmoil in the stock market going forward.”
Yardeni said rising geopolitical tensions are putting pressure on oil prices, some big profit misses for U.S. companies and still-strong labor conditions that could prevent the Federal Reserve from cutting interest rates. He highlighted several main reasons for his “disruptive” remarks, including the market. You will be charged immediately. As Federal Reserve Chairman Jerome Powell has said numerous times since he began raising interest rates in March 2022, the path to lower inflation is likely to be “bumpy” for the economy and markets.
Don’t expect market-boosting interest rate cuts anytime soon
At the end of 2023, most investment banks expected the Fed to cut rates by 100 basis points by the end of the year, with some expecting the first rate cut as early as March. Shares have risen from their October 2023 lows on expectations that borrowing costs will fall. But now, with the economy proving resilient to rising interest rates and two better-than-expected inflation reports in January and February, Fed officials are becoming less confident that inflation is truly under control. Wall Street has a different outlook on interest rates.
The current consensus outlook is for three 25 basis point rate cuts this year, with some observers taking a more pessimistic view. Atlanta Fed President Rafael Bostic, who has a vote on the Federal Open Market Committee (FOMC), which sets interest rates, said this week that he expects there will be only one interest rate cut this year and not until November or December. He said he is doing so.
The latest Job Openings and Turnover Survey (JOLTS) may be the main reason. The number of job openings in February remained at 8.75 million, indicating that the Fed is trying to prevent this. “This is a relatively high number, well above pre-pandemic highs, and suggests the labor market remains strong. Therefore, there is no need for the Fed to lower rates anytime soon,” Yardeni said. wrote about JOLTS data.
You may miss out on big profits
Several well-known companies also reported relatively weak financial results this week, which contributed to Tuesday’s market decline. First, Tesla released its automobile production and delivery report for the first quarter of 2024, revealing that the number of vehicles delivered in the first quarter decreased by 8.5% compared to the same period last year. The company’s stock price fell as much as 6.7% on Tuesday after the news broke, but it has since recouped some of its losses. And as of mid-afternoon Wednesday, Tesla shares were up 0.5%, but are now down more than 32% year-to-date on demand concerns.
Intel stock also plunged 10% this week after the company’s foundry division, which makes semiconductors, posted a $7 billion loss in 2023, an increase of $1.8 billion over 2022. Intel is making a big push into chip manufacturing amid the AI boom and the US. Tensions in China threaten chip supplies, but so far it has been difficult to turn a profit.
Shares of health insurance companies also fell sharply on Tuesday. Yardeni explained that the reason for this is that “the Biden administration did not increase payments for private Medicare plans as much as the insurance industry and investors had expected.”
Rising oil prices and the threat of Israeli-Iranian conflict
Finally, WTI crude oil prices, the oil market benchmark, have soared from $71 to $85 per barrel this year due to rising geopolitical tensions, declining oil inventories and OPEC+ production cuts. If that happens, U.S. inflation could worsen. Yardeni is particularly concerned about the impact of the conflict between Israel and Hamas on oil prices.
“Since Hamas attacked Israel on October 7, 2023, our greatest concern has been that the war between these two mortal enemies could escalate into a regional war, leading to direct confrontation between Israel and Iran. “The world oil supply could be disrupted,” he wrote.
Israel bombed the Iranian embassy in Syria on Monday, killing seven military advisers, and Iran vowed to retaliate in the wake of the attack. This is “a significant escalation in Israel’s war with its regional adversaries,” Yardeni said.
The veteran market watcher, who also holds a Ph.D. in economics, reiterated his recent recommendation that investors focus on the S&P 500 energy index as a “portfolio shock absorber against rising geopolitical risks in the Middle East.” Ta.
Francisco Branch, a commodities and derivatives strategist at Bank of America Research, said Houthi attacks on container ships in the Middle East have already caused a “surge” in demand for oil, with many countries cutting back on long-distance trade routes. He pointed out that they have no choice but to use the Ukraine’s attacks on Russian refineries are also “impacting supplies.”
Branch on Wednesday raised his 2024 price target for WTI crude oil to $81 per barrel, warning that prices could peak at $95 per barrel this summer. “Oil price trends have reversed due to lower crude oil inventories, OPEC+ production cuts, geopolitical tensions, and solid economic growth,” he said.
