Veteran Wall Street investor Ed Yardeni challenged fears of a U.S. recession on Monday, opposing the prevailing market sentiment that unsettled global equities.
"A weak July employment report does not make a recession," wrote Ed Yardeni, president of Yardeni Research, in a morning note published ahead of the stronger-than-expected ISM Services PMI report.
Yardeni argues that while the increases of 114,000 and 97,000 in July's total and private-industry payrolls were weaker than expected, they still represented growth.
"There's no reason to think they will be followed up by decreases. In fact, we expect to see bigger increases in the August employment report early next month," he explained.
Yardeni reiterated his confidence in the economy, stating, "We don't expect a hard landing of the economy." He further emphasized that the latest productivity data aligns with his "Roaring 2020s" outlook.
Last week, Yardeni raised his year-end S&P 500 target to 5,800 points, now implying a 12% surge from current levels. He predicts that the S&P 500 index, as tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), is set to reach 8,400 points by the end of the decade.
Yardeni Expects Employment Snap Back In August
Yardeni argued that the stock market's adverse reaction to Friday's jobs report was exaggerated. It seemed to price in a hard landing and anticipated federal funds rate cuts by the Federal Reserve, including a potential 50-basis-point cut in September.
He also suggested that the market selloff was exacerbated by speculators scrambling to cover their carry trades in the "Magnificent 7" stocks — Alphabet Inc. (NASDAQ:GOOGL), Amazon.com Inc. (NASDAQ:AMZN), Apple Inc. (NASDAQ:AAPL), Meta Platforms Inc. (NASDAQ:META), Microsoft Corp. (NASDAQ:NVDA), and Nvidia Corp. (NASDAQ:NVDA) — and other financial assets globally.
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"We believe that report was a weather-impacted anomaly and not representative of the strength of the U.S. labor market," they asserted.
While the Bureau of Labor Statistics (BLS) noted that Hurricane Beryl had no impact on the July employment report, Yardeni stated that the rise in the unemployment rate from 4.1% in June to 4.3% in July was influenced by inclement weather, including Beryl's impact on Texas.
Last week, Federal Reserve Chairman Jerome Powell noted, "Strong job creation over the past couple of years has been accompanied by an increase in the supply of workers, reflecting increases in participation among individuals aged 25 to 54 years and a strong pace of immigration."
As workers affected by July's inclement weather return to their jobs in August, Yardeni expects to see lower national unemployment claims and higher national payroll employment.
"Fed officials have plenty of time between now and their speeches at the Jackson Hole symposium in a few weeks to digest the report and see what we're seeing," he stated.
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