Noted market strategist Ed Yardeni sees corporate earnings powering stocks to 5,400 by the end of the year. This places him among the leaders of the bullish herd that includes major Wall Street brokerages like Oppenheimer.
Yardeni, proprietor of Glen Head, N.Y.-based Yardeni Research, also told attendees at the John Mauldin’s Strategic Investment Conference last Wednesday that the Standard & Poor’s 500 Index could rise to 6,000 by the end of 2025 and 6,500 the following year. Oppenheimer, for one, has a price target of 5,500 for the market, citing among other things, resilient fundamentals and effective monetary policy. The S&P closed at 5,078 yesterday.
“My thinking is the economy is going to continue to perform well. Consumers will continue to spend. We're seeing a lot of money being spent on shoring government,” Yardeni explained. “Most of us don't like government deficits, but the fact of the matter is that they have been stimulative, and they are focused on infrastructure spending and the like.”
The strategist defended his bullish outlook in a debate with another market veteran, Peter Boockvar, chief investment officer at Bleakley Financial Group, a firm in Fairfield, N.J., with more than $9.4 billion in brokerage and advisory assets.
For his part, Boockvar offered a more subdued outlook for the market. Noting the recent drop in Meta Platform’s stock price Wednesday despite the megacap tech company reporting better-than-expected first-quarter earnings, Boockvar noted the bar is high for earnings for many high-flying stocks. “Can we meet that bar and is there a margin of safety with the S&P trading at 21 times in a higher rate environment?” he asked. “I think that all remains to be seen and I would not be surprised if the 10% rally that we saw in the first couple months of the year [pulls] forward a lot of the year's stock market performance.”
So, the key question, according to Boockvar, is, can big-name tech stocks like Meta continue to carry the market? “That is a key determinant of whether we can achieve Ed’s targets,” he said.
“At some point, a law of large numbers is going to matter where growth rates end up being rather pedestrian,” Boockvar added. “I would not be surprised if just like we saw in the 2000s, just like we saw from the late '60s to the late '70s, that we can be in a trading range market for a while. We had an extraordinary run for 15 years on the foundation of almost zero interest rates in QE. And those days are over.”
The strategist thinks this market environment will reward more active stock management, and he’s finding opportunities in industries such as commodities and energy.
Boockvar has been long energy stocks for the last couple of years and still thinks, at 4% of the S&P, there's “a lot of upside” in the sector. “I would not be surprised if we had triple-digit oil prices at some point over the next couple of years,” predicted Boockvar, who also favors agriculture and particularly fertilizer stocks.
Furthermore, he’s also urging investors to look for “exciting growth stories” in Asian markets such as China, India and Indonesia.
Yardeni, who thinks the market could be in a 5% to 10% correction, likes sectors such as industrials, financials and technology, particularly communications services. He’s been overweighting these sectors since the start of the bull market.
“I really don't have a problem with just basically focusing on the S&P 500,” Yardeni explained. “I think that it's true that a lot of the gains have been attributable to the Magnificent Seven. We call them the MegaCap-8 because I include Netflix.”
The strategist also noted that there are a lot of stocks and industries that have generated 20% plus gains that aren't a part of the Magnificent Seven. He cited opportunities in cruise lines and “maybe” the homebuilders.
“Industrials…are going to benefit from on-shoring from infrastructure spending which probably (isn’t) going to go away anytime soon,” Yardeni said.
Unlike Boockvar, Yardeni would continue to overweight the U.S. relative to the rest of the world. But their debate ended in agreement: “I agree with Peter on energy,” Yardeni concluded. “I think it's a good shock absorber in the event of geopolitical risk and there's plenty of it right now.”