Veteran Wall Street investor Ed Yardeni has adjusted his outlook for the S&P 500, raising the year-end target to 5,800 from 5,400, and maintaining a target of 8,000 by the end of the decade.
"The stock market seems to be discounting our Roaring 2020s scenario faster than we expected," Yardeni stated in his latest Quicknote.
Yardeni's bullish stance, held since November 2022, has proven to be somewhat conservative as the bull market continues to surpass expectations.
Yardeni Cites European Economic Troubles, Reinforces 'Stay Home' Bias
Yardeni expressed concerns about European economies, noting that they are losing post-pandemic momentum.
"Growth is sagging in core countries like Germany, while periphery nations are relying on tourism, which fuels inflation and social strife," he said.
Political headwinds are exacerbating the situation. The European Commission is preparing to penalize countries with unsustainable fiscal policies, such as France, which also grapples with far right- and left-wing parties now dominating the Parliament.
Yardeni highlighted a significant spread between 10-year German and French government bond yields, which remains at its highest levels since the 2017 French presidential election. Considering the dimmed outlook for the core Eurozone, he asserted, "We're not looking to pile into European stocks anytime soon."
Instead, Yardeni stressed a preference for domestic investments. "A sea of troubles for European economies, reinforces our Stay Home (versus Go Global) equity investing bias."
The Fed's Influence on Market Sentiment
Signs that the Federal Reserve might lower the federal funds rate soon have propelled stocks higher, despite the weak economic data driving these expectations.
Yardeni acknowledged, "The Fed Put is back."
However, he warned against the Fed easing too soon, cautioning that shifting focus from inflation to unemployment could be a mistake.
"Given the likelihood that the soft patch won't grow into a recession and that trade policies next year are bound to be inflationary," he said.
Q2 Earnings: Positive Projections
Yardeni offered an optimistic view on Q2 earnings growth for the S&P 500. The Q2-2024 EPS estimate of $59.22 remained unchanged from the start to the end of the quarter, a rare occurrence.
Typically, there's a decline as the quarter progresses. Yardeni noted, "The quarter's 0% change is great news and implies yet another strong earnings surprise."
Sector Highlights
Four sectors are projected to record double-digit percentage gains:
- Communication Services: Expected to see a 21.7% increase.
- Health Care: Projected to grow by 20.2%.
- Information Technology: Anticipated to rise by 16.9%.
- Energy: Forecasted to increase by 11.4%.
The MegaCap-7 group of stocks—Microsoft Corp. (NYSE:MSFT), Apple Inc. (NASDAQ:AAPL), NVIDIA Corp. (NASDAQ:NVDA), Alphabet Inc. (NASDAQ:GOOG) (NASDAQ:GOOGL), Amazon Inc. (NASDAQ:AMZN), Meta Platforms Inc. (NASDAQ:META) and Tesla, Inc. (NASDAQ:TSLA)—is expected to post a year-over-year earnings growth of 28.3% in Q2-2024.
Although this is down from the 50%-56% range of the previous three quarters, it is nearly identical to the 28.0% growth observed in the same quarter a year earlier.
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