“Our number one worry is that we won’t satisfy our customers, so they will go elsewhere, putting us out of business,” he says. When politicians try to intervene against technology and globalization, the results are likely to be excess capacity, deflation and stagnation. In reality, the best is yet to come despite the understandable grievances of those dislocated.

Yardeni admits he would like to be a believer in supply-side economics, but intellectual honesty requires him to remain a fact-based empiricist, not a “faith-based” dogmatist. That’s why he can’t buy into the expectations of sustained 3% or 4% GDP growth touted by President Trump and his chief economic advisor, Larry Kudlow.

The recent tax cut and increases in government spending will provide stimulus for an economy near full employment, so GDP growth of 3% or 3.5% is certainly possible for a few years. Yardeni says the problem is that once growth gets going at that clip, Americans will just start buying more imports, so money will leave the country. These facts embedded in the global economy are not likely to please the president with his binary perspective on global trade.

Lifting GDP

“Globalization will prevail,” Yardeni predicts. Even though it is under assault from populists and protectionists around the world, the level of investments and the degree of interdependence already sunk into the global economy make it unfeasible for politicians to unwind.

It's possible, in Yardeni’s view, that for all his hyperbolic rhetoric, President Trump could “save free trade from itself.” Multilateral trade agreements “lend themselves to being abused,” and those who aren’t benefiting can easily be convinced they are victims of cheaters by nationalists.

Conditioned by the experience of his long career, Yardeni believes this bull market has a ways to run. If one wanted to, they could view the last 40 years as one extended bull market that took a brief, violent break in 1987 and then went through eight years of hibernation from 2000 to 2008, followed by another sharp but relatively short downturn.

Investors need to moderate their expectations for equities after enjoying 14%-plus annualized returns since 2009. Still, Yardeni remains upbeat, maintaining that the S&P 500 should deliver 7% annual gains, right in line with its long-term averages, between now and 2025. That would take the index from 2,660 in mid-April to 4,271 by 2025. Depending on how the trade issue unfolds, he sees the S&P hitting 3,100 by later this year or early 2019.

Lifting GDP growth in the U.S. above the 2.0% to 2.5% range is not sustainable as long as population growth remains at 0.5% and current demographic trends remain in place, he says. Only a surge in productivity or an increase in immigration could change this in the near term.

So how can equities advance at a 7% rate when the economy has grown at a clip of only 2.35%, as it has for the last five years? Simply put, the economy is not the stock market, and those companies admitted to the S&P 500 represent an elite group of businesses that are bigger and stronger than most U.S. firms, Yardeni notes. When they falter or exhibit pedestrian returns, many are tossed out of the index.