Market veteran Ed Yardeni is confident that the stock market rally is far from over, citing reasonable valuations and continued earnings growth as key drivers. Despite concerns about a narrow rally in tech stocks and stretched valuations, Yardeni believes that the market is well-supported by strong profits.
One of the reasons for Yardeni’s optimism is the record high in analysts’ forward earnings expectations, with the S&P 500’s annualized earnings per share reaching $261.74. This, coupled with the belief that a recession is unlikely in the near future, provides a solid foundation for the market rally.
Yardeni also points to improving market breadth, with a growing number of S&P 500 companies showing positive three-month percent changes in forward earnings. This suggests a broadening of the market’s breadth, which could lead to further gains.
Despite the S&P 500’s high forward price-to-earnings multiple, Yardeni believes that valuations are not stretched, especially when considering the index’s median forward price-to-earnings multiple. This, combined with expectations of solid earnings growth in the coming years, paints a positive picture for the market.
AI is another factor driving Yardeni’s bullish outlook, with companies like Corning benefiting from generative AI technologies. The recent surge in Corning’s stock price following strong demand for its products further supports the idea that the AI boom is spreading to more companies.
While some may draw parallels between the current market environment and the dot-com boom of the 1990s, Yardeni remains confident that the Fed will step in to lower interest rates if needed to support the economy and markets. Overall, Yardeni describes the current market as a “slow-motion melt-up,” with investors focusing on the potential for further gains rather than economic concerns.
As the stock market continues to hit record highs, Yardeni’s insights provide a compelling case for why investors should remain bullish on stocks in the coming months.
