Ed Yardini, a Wall Street veteran who has been in charge of investment strategy at firms like Prudential and Deutsche Bank, believes the seemingly never-ending money printing by the Federal Reserve will lead the stock market to all-time highs within a year.
Yardini recently appeared on CNBC and explained that by not putting a limit on its bond purchases, the Fed signaled it was time to cash out of bonds and move over to scoop up beaten-down stocks.
“On March 23, we made a low exactly on the same day that the Federal Reserve introduced what I call ‘QE4ever.’ The Fed announced that they were going to purchase bonds for the foreseeable future. They didn’t put any end date on it. They didn’t put any limit on it.”
He added, “If we have another opportunity for any downside, I think you’ll see more re-balancing which very much reduces the likelihood that we’ll be able to get back to the March 23 lows.”
A Bullish Turn
This bullish turn for Yardeni comes after he was warning investors in February to move to cash as he saw the coronavirus as a huge threat to the economy.
During a CNBC appearance, Yardini correctly surmised that the virus would wreak havoc on our economy and bring the stock market rally to a sudden halt.
“That’s all I really see. The longer that this virus threat continues to weigh on the global economy, the more it poses a risk for at least a correction in the stock market.”
“The markets have done remarkably well in the face of headline news that’s still unsettling like cruise ships being quarantined and China basically being completely quarantined because of cancellations of flights,” he said. “That’s got to be disruptive for supply chains.”
He added. “If I’ve got some spare cash, I’d like to just keep it as dry powder until I get a little bit more clarity on this coronavirus.”
Now that we do have that clarity on the coronavirus outbreak, and it appears that new cases have slowed across much of the country, Yardini thinks it’s now time to look forward.
“It seems a little out of place to talk about a new high when obviously the economic indicators are horrible. But the market does look forward. Sometime next year, maybe by the end of next year, we’ll be moving toward 3,500. We got as high as 3,300 back in February.”
Yardini’s optimism does come with a huge caveat. He says the US must reopen before summer so the economy can avoid significant long-term damage from the shutdown.
He added, “I would get very concerned if we keep this thing locked down past May. In that scenario, we’re not talking about a ‘V’-[shaped economic] recovery. I mean we wouldn’t even be talking about a ‘U’-recovery. Something more like an ‘L’, and I certainly wouldn’t want to see that.”
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