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There’s a growing risk of a stock market melt-up, based on market veteran Ed Yardeni.
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Yardeni said the return of the “Fed Put” means stocks could soar on the anticipation and realization of rate of interest cuts.
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But stock market melt-ups are rarely sustainable and are sometimes followed by a painful decline.
There’s a growing risk that the Federal Reserve could spark a stock market melt-up, based on market veteran and investment strategist Ed Yardeni.
The “Fed Put,” or the concept the Fed will save the stock market with rate of interest cuts amid any sign of economic weakness, has returned to markets after Fed Chairman Jerome Powell indicated last month that the next rate of interest decision is more prone to be a cut, not a hike.
“Investors’ expectation that the Fed would nip a recession throughout the bud by easing signifies that the Fed Put is back,” Yardeni told clients in a note on Tuesday. “Its return reduces the prospect of a recession and a bear market. It increases the prospect of a melt-up throughout the stock market.”
Ultimately, investors’ anticipation of monetary easing by the Fed via rate of interest cuts, whether realized or not, could unleash a contemporary wave of animal spirits that catapults the stock market reasonably quite a bit higher from here.
Yardeni himself sees the S&P 500 rising to record highs by the highest of the 12 months at 5,400, and has also suggested that the index could soar as much as 25% to 6,500 through 2026.
“We don’t expect any recession this 12 months that the Fed would should take care of by easing. But since some investors think which can occur, the Fed Put is back. With it comes increased risk of a stock market meltup,” Yardeni said.
Aiding Yardeni’s bullish outlook for stocks, and the potential risk of an unsustainable stock market boom, is the proven undeniable fact that earnings expectations proceed to rise following better-than-expected first-quarter results.
Wall Street analysts now expect S&P 500 earnings growth of 10.1% this 12 months, accelerating to 13.9% in 2025 and 11.8% in 2026, which represents an increasingly bullish outlook for corporate profits.
“As we have now often observed to this point, if the possibilities of a recession are low, then S&P 500 forward earnings is an outstanding leading indicator of actual earnings,” Yardeni explained. And rising earnings are what ultimately drive stock prices higher throughout the long-term.
Nonetheless the growing risk of a stock market melt-up coincides with the prospect of a stock market sell-off, as melt-ups are rarely sustainable and are sometimes quickly followed by a swift and painful decline.
For investors, the query is whether or not or not or not a possible stock market melt-up and subsequent decline will occur at prices reasonably quite a bit higher or lower from current levels.
Read the unique article on Business Insider