Macro

Ed Yardeni Raises S&P 500 Target to 5,800, Predicts Faster 'Roaring 2020s'

S&P 500 hits record 5,600, Yardeni raises year-end target to 5,800 amid tech stock surge.

By Bill Bullington

7/11, 09:49 EDT
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Key Takeaway

  • Ed Yardeni raises his S&P 500 year-end target to 5,800 from 5,400, citing a "slow-motion meltup" and strong growth prospects.
  • Yardeni's bullish forecast includes the S&P 500 reaching 8,000 by the end of the decade, driven by technological advancements like AI.
  • The S&P 500 has outperformed expectations with an 18% YTD gain and nearly a 28% rise over the past year.

S&P 500's Record Rally

The S&P 500 has surged to unprecedented heights, surpassing the 5,600 mark for the first time in its history. This milestone was achieved amid growing investor optimism that the Federal Reserve will cut interest rates this year. Federal Reserve Chair Jerome Powell's recent remarks to Congress did little to dissuade traders from this belief. Powell stated that the Fed does not need inflation to fall below 2% before considering rate cuts, although he emphasized that "the job is not done on inflation." This has led swap traders to price in two Fed cuts in 2024, with higher chances that the first cut could come as early as September.

The rally has been significantly fueled by megacap tech stocks, with Nvidia Corp. rising 2.7% and Apple Inc. climbing on news that it aims to ship 10% more new iPhones in 2024. The S&P 500 has consistently beaten projections over the past two years, driven largely by gains in these tech giants. The index is up 18% year-to-date and nearly 28% over the past 12 months.

Bullish Forecasts Adjusted

Ed Yardeni of Yardeni Research has raised his year-end target for the S&P 500 to 5,800 from 5,400, citing a "slow-motion meltup" in the market. Yardeni, who has been one of the most bullish investment strategists since November 2022, noted that the market is embracing his "Roaring 2020s" scenario faster than expected. "The stock market seems to be discounting our Roaring 2020s scenario faster than we expected. We’ve been among the most bullish investment strategists since November 2022, but not bullish enough. The bull market might continue to achieve our targets ahead of schedule," Yardeni said.

Yardeni's new target for 2024 is on the high side of Wall Street expectations. According to the CNBC Market Strategist Survey, the average year-end target from major banks is 5,464, with a median forecast of 5,600. The S&P 500 closed Wednesday at 5,633.91, needing to rise about 3% by year-end to reach Yardeni’s 2024 target.

Valuation Concerns and Earnings Outlook

Despite the rally, there are growing concerns about the S&P 500's valuations. The index’s 12-month forward P/E ratio is about 21.5, the highest since the end of 2021. The Bloomberg Economic Surprise Index is negative and at its lowest since 2015, indicating that recent economic data has been disappointing. Many investors are worried that the S&P 500 is overly reliant on big tech stocks, which have benefited from superior earnings growth, industry dominance, and enthusiasm for artificial intelligence. This has raised comparisons to the dot-com bubble.

The upcoming earnings season presents a high bar for companies to impress investors. During the first quarter, the average S&P 500 company that beat EPS estimates still trailed the market. Earnings growth for the "Magnificent Seven" tech stocks is expected to slow to 18% in the second quarter, about half of last year’s average rate. However, the rest of the S&P 500’s companies are expected to post the first positive profit growth in at least six quarters, with Bloomberg Intelligence predicting double-digit expansion by the fourth quarter.

Street Views

  • Ed Yardeni, Yardeni Research (Bullish on the S&P 500):

    "The stock market seems to be discounting our Roaring 2020s scenario faster than we expected. We’ve been among the most bullish investment strategists since November 2022, but not bullish enough. The bull market might continue to achieve our targets ahead of schedule."