- The stock market is “discounting lots of good news through the end of next year” and will rally into 2022, strategist Ed Yardeni said in a Wednesday note.
- The longtime bull raised his S&P 500 targets to 3,500 for this year and 3,800 for 2021.
- Stocks remain in the same melt-up that began in late March, and expectations for strong profit growth should keep prices rallying for several months, Yardeni said.
- Indexes’ initial leap on Tuesday’s news of a Russian coronavirus vaccine also shows how stocks will react to good news down the road, he added.
- Watch the S&P 500 update live here.
Unprecedented stimulus and stocks’ overwhelmingly bullish trend will drive the S&P 500 another 5% higher this year and 14% through the end of 2021, renowned strategist Ed Yardeni said Wednesday.
The S&P sits less than 10 points away from notching an all-time record, most recently soaring on rebounding tech giants. The index’s strong rally will likely continue through the year and render previous forecasts quite conservative, Yardeni said.
The strategist pulled his 2021 target for the S&P 500 forward by one year, calling for the index to reach 3,500 over the next few months. He also boosted his 2021 target to 3,800.
“It seems to us that the stock market already has discounted lots of the good news likely to occur through the end of next year,” the president of Yardeni Research wrote in a note to clients.
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The market remains in the same melt-up that began when the Federal Reserve revealed a spate of relief measures on March 23, according to the strategist. Combining the hefty central bank aid with the $2.2 trillion CARES Act and historically low Treasury yields, investors have no better choice but to sink cash into stocks, he added.
Investors are also underestimating companies’ future profit growth, Yardeni said. Analysts’ estimates for future S&P 500 revenues bottomed in recent weeks, and forward earnings are up only 5.3% from their May 15 low. Historically low interest rates improve the likelihood of real earnings growth and, in turn, boost valuation multiples.
Fed officials recently maintained that interest rates will stay near zero for years to come. Such a forecast should keep price-earnings ratios rising well into 2021, Yardeni said.
The strategist pointed to Tuesday’s price action as the final support for his bullish outlook. Stock futures gained early Tuesday on reports that Russia had become the first country to approve a coronavirus vaccine. Experts met the news with skepticism. The vaccine hadn’t yet completed critical phase 3 trials, and had only been tested on small groups. Health authorities panned the approval, but the vaccine’s effect on stocks had already been seen.
Russia’s vaccine may prove effective. More importantly to markets, Tuesday’s early surge shows the extent to which the S&P 500’s melt-up remains strong, Yardeni said. Similar price action is likely to occur as markets digest more good news, he added.
The S&P 500 closed at 3,380.35 on Wednesday, up 5% year-to-date.
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