July 18, 2024

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Stocks could stall in the first half of 2024, Ed Yardeni says

2 min read

In 2023, while most forecasters were pessimistic about the U.S. economy and stock market, Ed Yardeni was decidedly bullish. The veteran investment strategist and founder of Yardeni Research argued that fading inflation, a stable labor market, robust earnings, and the rollout of new technologies including AI would cause the S&P 500 to soar more than 18% to 4,600 last year. 

It was an optimistic, out-of-consensus outlook that proved prescient—and even slightly too bearish. The S&P 500 jumped more than 24% in 2023 to 4,769 in 2023, to the surprise of Wall Street, and the tech heavy Nasdaq Composite soared 43% to 15,011. 

Now though, Yardeni warns the first half of this year might not be so good to stock market investors. He still believes the U.S. is experiencing a “Roaring 2020’s”—when tech innovation, from AI to robotics, will help boost worker productivity and cut business costs, ushering in an age of relative abundance—but there are also four “clear and present dangers” that will likely hold stocks back in the near-term.

“We wouldn’t be surprised if the S&P 500 stalls during the first half of the year and then rallies to 5,400 by the end of the year,” Yardeni wrote in a Wednesday note.

A hawkish Fed

At the end of last year, investors predicting aggressive interest rate cuts in 2024 may have been overly optimistic. Although the Fed’s December Summary of Economic Projections forecasted three 25 basis point rate cuts in 2024, many investors were penciling in five such cuts.

Essentially, as Yardeni explained Wednesday, “the stock and bond rallies since late October might have discounted an easier monetary policy this year than Fed officials are likely to deliver.”

This mismatch in interest rate forecasts between investors and the Fed may lead central bank officials to “start the new year by trying to lower expectations for rate cuts,” according to Yardeni. And any sign that the Fed won’t cut rates…

Will Daniel

2024-01-04 13:38:51

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