Yardeni Research has raised its year-end target for the S&P 500 to 5,800 from 5,400, reflecting a heightened bullish outlook driven by recent market dynamics and economic indicators. They also maintain a long-term target of 8,000 by the end of the decade, underscoring their confidence in a sustained “Roaring 2020s” scenario.
The adjustment in their forecast comes amidst what they describe as a “slow-motion meltup” in the stock market since June. Despite economic indicators showing some weakness, expectations of Federal Reserve interest-rate cuts have gained traction. Futures markets are pricing in the likelihood of four 25-basis-point rate cuts over the next year, with signals pointing towards a potential start as early as September. This dovish sentiment has been reinforced by Federal Reserve Chair Jerome Powell’s recent congressional testimony, which hinted at a proactive stance to support economic growth.
Yardeni Research acknowledges the debate surrounding the necessity of rate cuts, yet recognizes their potential to further propel the market’s upward trajectory. They highlight the substantial liquidity available, with approximately $6.15 trillion in money-market mutual funds poised to stimulate additional market gains should rates decrease.
The current bull market, according to Yardeni, has been notably influenced by advancements in artificial intelligence (AI) and related technologies. The introduction of technologies like ChatGPT by OpenAI in late 2022 has marked a significant shift, with recent market rallies fueled by positive corporate earnings reports. For instance, Taiwan Semiconductor Manufacturing Co. Ltd. reported robust second-quarter earnings driven by investments in AI-related data centers. Similarly, Corning Inc.’s upward revision in guidance, citing strong demand for optical-connectivity products used in AI applications, further bolstered investor confidence.
Drawing parallels to the late 1990s, Yardeni points out similarities in market dynamics, including a concentration of market capitalization in information technology and communication services sectors. However, they emphasize that this time around, there is stronger earnings support underpinning the market’s ascent, distinguishing it from past speculative bubbles.
Despite elevated bullish sentiment—as indicated by the Investors Intelligence report showing a Bull/Bear Ratio of 3.50, traditionally a contrarian bearish signal—Yardeni suggests that the significant capital parked in short-term instruments and bank deposits could temper traditional market volatility indicators. Nonetheless, they caution that a potential rate cut by the Fed could unleash heightened market exuberance, potentially amplifying market volatility.
Looking ahead, Yardeni Research anticipates a potential broadening of the market rally, driven by expected strong second-quarter earnings across various sectors and increased integration of AI technologies beyond traditional tech companies. This optimistic outlook underscores their belief in the market’s capacity to surpass their revised targets ahead of schedule, buoyed by evolving economic conditions and investor sentiment favoring continued expansion.