Perma-bull Ed Yardeni optimistic on markets beyond possible June ‘swoon’

Veteran market strategist Ed Yardeni is maintaining his bullish outlook for the U.S. stock market for this year and decade but says there are short-term risks that could cause some volatility in the coming weeks.

“We could have a swoon in June,” the president and chief investment strategist of Yardeni Research said during an event held by Hamilton ETFs in Toronto on Thursday.

The renowned economist and self-proclaimed perma-bull added that the U.S. stock market “was offered a great buying opportunity in March, and then in April and May it kind of went straight up, so maybe we’re going to consolidate here for a little bit in June.”

Yardeni said the energy crisis stemming from the U.S.-Iran war, a possible shift in interest rates and the anticipated wave of mega initial public offerings (IPOs) are some of the potential sources of volatility.

He noted that there are widespread fears about oil inventories drying up, with an Exxon Mobil executive recently projecting that the price of Brent crude could spike to US$150 or more per barrel in the coming weeks as the Strait of Hormuz remains closed amid the ongoing conflict.

The price of Brent crude, the international standard, was hovering around US$93 on Friday, but has surpassed US$126 at its peak during the war.

Regarding the direction of interest rates, Yardeni, who coined the term “bond vigilantes,” said he expects the U.S. Federal Reserve to shift from an easing bias to a tightening bias, potentially leading to a rate hike as soon as this July.

He’s also watching for large IPOs from SpaceX, OpenAI and Anthropic, which are expected to add nearly US$4 trillion in market capitalization to U.S. equity markets. Valuations for these companies are wide ranging, however, and if they end up falling short of current expectations, there could be some market volatility. (He still plans to purchase 1,000 SpaceX shares.)

Despite these near-term concerns, Yardeni is maintaining his year-end S&P 500 target of 8,250, the highest call on Wall Street, which he recently increased from 7,700. The index closed at 7,383 points on Friday.

And he expects the S&P 500 to reach 10,000 points by the end of the decade, driven by technological innovation, much like the Roaring Twenties.

“It’s been a bull market for quite some time,” Yardeni said, noting the recent market rally is fuelled by the AI sector. “The Roaring 2020s, so far, has been doing quite well.”

He attributed this not to FOMO, or the fear of missing out, but rather to what he called FEMO — “fabulous earnings momentum” — driven by a “capital spending boom.”

Private market woes, AI and more

Yardeni also addressed concerns about the private markets, gold and the AI boom.

He said the recent liquidity crunch in the private equity and credit markets is a “panic attack that’s not going to turn out into the Black Swan event” that will trigger a broader financial crisis.

“Historically, it has been credit crunches that cause recessions, so if this private equity, private debt thing turns out to create an economy-wide credit crunch, then we have a recession,” he said. “But we’ve been worrying about this for about one to two years now, and it just doesn’t seem to be playing out as something that’s going to take the system down.”

At the same time, Yardeni noted that traditional banks are increasing lending, suggesting the regulated financial system remains healthy.

On gold, he said its recent price movements amid heightened geopolitical tensions and inflation risk have been difficult to explain, but suggested the precious metal could see further gains as investors turn to the safe-haven asset for diversification purposes. He’s forecasting that gold could reach US$10,000 an ounce by the end of the decade.

Yardeni also addressed a question about whether there’s a risk that AI services are currently “artificially” inflated in price and that scaling these services could be more expensive than anticipated.

While companies like Microsoft Corp. are learning that using AI costs a lot of money and energy, he said these issues just invite more innovation.

“Technology solves problems, and right now we’ve got an energy problem with AI, we’ve got processing and memory problems,” Yardeni said. “And these problems, that’s where the opportunities are for innovators to come in.”