Ed Yardini On ‘Why Stocks Will Keep On Cooking’
Leslie P. Norton had an article in this weekend’s (Mar. 10/11) Barron’s, with the title above. She conducted an interview with Ed Yardini, founder/CEO of Yardini Research. Mr. Yardini, who is one of the more followed stock market forecasters, told Barron’s that “earnings are phenomenal; and the [Trump] tax cuts have added seven percentage points to earnings growth this year.” Mr. Yardini “estimates S&P 500 index earnings of $155 per year, up 16.8 percent , and $166 for 2019, up 7.1 percent.” He has a 3100 target for the S&P 500 for this year — the index closed at 2786 on Friday. Mr. Yardini said he would get out when he sees signs of a U.S. recession, which does not appear likely anytime soon.
Where Are The Opportunities In The Market?
Mr Yardini explained to Ms. Norton that “there are some powerful secular trends. Globally, there’s an aging demographic. For relatively young demographics, you have to go to the emerging markets (EM), where the middle classes are rising; and, spending more of their incomes on items, rather than [mainly] food and fuel. Even with the Fed tightening,” Mr. Yardini said, “these economies and markets have performed pretty well. In the past [credit] tightening would have been bad news. In the U.S., the demography is aging baby boomers and young millennials are increasingly in their 30s,” and starting a family and buying their first home. That should be very positive for the U.S. housing market.
“Another [opportunity] is technological disruption,” Mr. Yardini told Barron’s. “The Internet-of-Things (IoT), the introduction of 5G wireless technology, and driverless cars are creating a tremendous demand for semiconductors.” I would add advancements and momentum in artificial intelligence (AI), deep-learning, big data mining, and quantum computing, are all causing various forms of disruption. “Finance is also interesting,” Mr. Yardini added. Meanwhile, “Bitcoin is getting all the buzz; but, you’re seeing the big banks spending money [focusing] on the blockchain, or the software [and technology] behind it. I wouldn’t be surprised if major central banks latch on to crypto-currencies — so we have ‘bit-dollars, bit-Euros, bit-yen. The financial world is being turned upside down,” Mr. Yardini said, and this disruption is expected to continue for the foreseeable future; and, could even accelerate.
Speaking Of Currencies — What Is Your View Of The Dollar?
Mr. Yardini explained that “a simple thesis of mine is that when the the dollar does well when the rest of the global economy isn’t doing so well; and, performs poorly when the rest of the world is performing on all cylinders. We saw that simple model play out elegantly from the second half of 2014, through the beginning of 2017,” he argued. “In 2016, we started to see more evidence that Europe and emerging economies were doing better than expected, and Japan was improving. It’s interesting that the dollar peaked, even though the European Central Bank (ECB) and the Bank Japan (BoJ) were still maintaining their ultra-easy monetary policies; and, [while] the Fed had been normalizing since October 2014.”
Mr. Yardini is an interesting author and stock market seer, and is worth listening to/reading, even if he isn’t always right. No one is, But, I believe he is correct on his outlook for U.S. stocks, at least for the first half of this year. Outside of the North Korea nuclear issue, an overly aggressive Fed, or an unexpected black swan event, I believe the trend is your friend and stocks will continue to melt up higher — though we’re going to see a lot more volatility that we did in 2017. I think how the second half of 2018 plays out — will to a large degree, depend on the outcome of the mid-term Congressional elections. POTUS Trump’s pro-business philosophy and policies, as well as decreasing the oppressive and over-regulatory Obama policies is feeding this major upturn we’re experiencing with respect to jobs, and optimistic economic outlook. If the Democrats have a much better than expected showing in the mid-terms, that would likely upset the apple-cart and be a headwind for stocks in the second half. Until then, you make hay when the sun is shinning, and I intend to continue to take full advantage of this melt-up in equities, by staying fully invested; and, picking stocks, and sectors — as I have been doing all year. V/R, RCP, fortunascorner.com