Why Veteran Wall Street Investor Believes We're Still In A Bull Market

BY Benzinga | ECONOMIC | 05/06/24 09:43 AM EDT

Veteran Wall Street investor Ed Yardeni confidently stated that we are still in a bull market, underpinned by several economic indicators and market behaviors that suggest continued growth potential.

Yardeni’s bullish stance is primarily supported by the prospect of the Federal Reserve adopting a less aggressive approach, alongside a positive earnings season that has outpaced expectations.

Crucially, he highlights the sharp drop in geopolitical risk premiums, evident in the significant decline in Brent crude oil prices, which fell from a recent peak of $91.17 to $82.96 on April 5. This price shift is a key indicator of reduced market volatility and investor anxiety.

Adding depth to this analysis, Yardeni points out that stock market sentiment indicators, traditionally seen as predictors of market mood, have normalized.

Recent data from Investors Intelligence and the American Association of Individual Investors (AAII) show bull/bear ratios returning to historical averages, a condition Yardeni interprets as bullish from a contrarian perspective.

The interpretation of recent economic indicators also plays a crucial role in Yardeni’s outlook. Last week’s economic data, generally weaker than expected, paradoxically bolsters his bullish view as it may encourage the Federal Reserve to reintroduce market-stabilizing measures, such as the announcement last week of a slower-than-expected balance sheet runoff (quantitative tightening).

“Fed officials might start sounding less hawkish and more dovish,” he said. 

This is underscored by the retreat of the two-year Treasury yield, which dipped from 5.04% on Tuesday to 4.81% by Friday, reflecting growing investor anticipation of Federal rate cuts.

“A couple of Fed rate cuts over the rest of the year are back on the table,” Yardeni stated.

Chart: 2-Year Yields Declined After Fed Meeting

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Stocks Rebound On Dovish Fed Signals, Cooler Jobs Data

Market performance further supports his perspective. The S&P 500 index, monitored via the SPDR S&P 500 ETF Trust (SPY) , rose 0.6% last week, marking its second consecutive week of gains after a three-week downturn. Particularly notable were the gains during the Thursday and Friday sessions, where the index surged by 0.9% and 1.2%, respectively.

Similarly, the tech-driven Invesco QQQ Trust posted a 1% overall increase for the week, with substantial gains of 1.3% and 2% on the same days, buoyed by investor reactions to a less hawkish Fed and cooler labor market statistics.

Looking ahead, the market faces a week that will be light on new data, with significant updates not due until Friday's release of the University of Michigan consumer sentiment index for May.

Read now: Federal Reserve Dismisses Rate Hike Fears, Labor Market Cools, Apple Lures Investors With Record-Breaking Buyback: This Week In The Market

Image generated using artificial intelligence via Midjourney.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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