Last year’s recession was very different from any other nasty recession that the U.S. economy has ever experienced, Ed Yardeni told attendees at John Mauldin’s Strategic Investment Conference on Monday.
The recession was notable for both the sharp downturn and its brief duration. “We never had a severe recession like we had last year because we never had a lockdown,” the head of Yardeni Research said.
The shutdown of traditional spending outlets turned Americans into a nation of savers through no choice of their own. “Even people who lost jobs and got checks couldn’t spend it all,” Yardeni said.
With the prominent exception of the labor market, “many indicators are ahead of where they were before the pandemic,” Yardeni said. He added that both Federal Reserve chair Jay Powell and Treasury Secretary Janet Yellen have indicated that they want to drive the economy to maximum employment by year-end.
Another factor differentiated last year’s recession from most others. “What typically causes recessions and bear markets is a credit crunch,” he observed.
This time around, the junk bond market has been remarkably free of defaults. “If we are going in any direction, it’s Japan, not Weimar Germany,” he said.
Yardeni doesn’t see a return to the 1970s-style inflation that many are worried about. “The biggest difference is productivity,” he said. “It’s the magic variable [that] could offset wage pressures and sustain profit margins.”
That’s why he thinks that the S&P 500 will go to 4,800 by the end of 2022. The yield on 10-year Treasurys could reach 2.0% this year and 2.5% or 3.0% next year, but Yardeni doesn’t see that as a threat to stock prices.
“The market will continue to broaden out but I’d continue to overweight the U.S.,” he said.