Ed Yardeni Downplays Recession Fears But Warns, ‘We Need More Bears To Keep The Bull Market Going’

Veteran Wall Street investor Ed Yardeni downplayed the imminent recession risk but cautioned that the disappearance of bearish sentiment is a contrarian signal for the bull market’s sustainability.

Yardeni emphasized that recent weak economic data has paradoxically boosted stock prices. This is because investors interpret bad economic news as increasing the likelihood of the Federal Reserve lowering interest rates soon.

Yardeni stated, “Signs that the Fed might lower the federal funds rate soon have sent stocks soaring, even though those signs were weak economic data.”

Yardeni emphasized economic indicators, such as the Citigroup Economic Surprise Index, which dropped to -46.8 on Friday, signaled potential weakness. Although this level is above previous recession lows, it might be heading downward.

“We are not convinced that it is leading to a recession that the Fed would need to avert by lowering the federal funds rate,” the veteran investor stated.

Yardeni estimated a 25% chance of a rate cut in July and a 40% probability of a cut in either September or November.

He noted that no matter whether President Donald Trump or President Joe Biden wins in the upcoming election, fiscal and trade policies are likely to be inflationary next year, with both candidates discussing tariff increases and Trump aiming to extend his 2017 tax cuts beyond their 2025 expiration.

Despite the S&P 500, as tracked by the SPDR S&P 500 ETF Trust SPY, surpassing Yardeni’s year-end target of 5,400, Yardeni is not ready to revise his targets upward. “We aren’t raising our year-end target for the S&P 500 just yet,” he said, acknowledging the index’s outperformance.

Yardeni is reconsidering his projections, wondering if his estimates of 6,000 by the end of 2025, 6,500 by the end of 2026, and 8,000 by the end of the decade might be too conservative.

Yardeni observed that some long-time bearish investors missed the recent bull market, having remained bearish during the downturn from early 2022 through October 2022. Despite predictions of a recession, Yardeni suggested this time might differ because inflation has moderated significantly, enabling the Fed to lower interest rates to avoid a recession without needing to induce one to reduce inflation.

Yardeni also highlighted notable changes among investment strategists, such as the departure of JP Morgan’s Marco Kolanovic and Piper Sandler’s Michael Kantrowitz ceasing to publish year-end targets for the S&P 500.

Yardeni views these developments as potential bearish signals from a contrarian perspective. He stressed, “We need more bears to keep the bull market going.”

The Investor Intelligence Bull/Bear Ratio was at 3.73 during the week of July 2, with the percentage of bulls rising to 63.1% and bears falling to 16.9%, Yardeni noted.

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