Stocks will soar 14% by the end of next year on unyielding optimism, long-standing bull Ed Yardeni says

• The stock market has "discounted lots of the good news likely to occur through the end of next year" and will rally into 2022, the strategist Ed Yardeni said in a Wednesday note.
• The longtime bull raised his S&P 500 targets to 3,500 for this year and to 3,800 for 2021.
• Stocks remain in the melt-up that began in late March, and expectations for strong profit growth should keep prices rallying for several months, Yardeni said.
• He added that indexes' initial leap on Tuesday's news of a Russian coronavirus vaccine also showed how stocks would react to good news down the road.
• 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% higher through the end of 2021, the renowned strategist Ed Yardeni said on Wednesday.

The S&P sits less than 10 points from an all-time record, most recently soaring on rebounding tech giants. The index's strong rally is likely to continue through the year and render previous forecasts quite conservative, said Yardeni, the president of Yardeni Research.

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," he wrote in a note to clients.

Read more: Goldman Sachs explains the biggest factors that will drive returns in all 11 stock-market sectors amid virus uncertainty — and lays out how you should position your portfolio in each one

The market remains in the melt-up that began when the Federal Reserve revealed a spate of relief measures on March 23, the strategist said. 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 revenue 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 would stay near zero for years to come. Such a forecast should keep price-earnings ratios rising well into 2021, Yardeni said.

Read more: Fred Liu's Hayden Capital has returned more than 100% in 2020. He breaks down the simple strategy he used to pinpoint 2 stocks that grew 10-times within just a few years.

The strategist pointed to Tuesday's price action as more support for his bullish outlook. Stock futures gained early on reports that Russia had become the first country to approve a coronavirus vaccine, though experts met the news with skepticism; the vaccine hadn't yet completed critical phase-three trials and had been tested only in small groups. Health authorities panned the approval, but the vaccine news had already affected stocks.

More important to markets, Tuesday's early surge showed the extent to which the S&P 500's melt-up remains strong, Yardeni said, adding that similar price action is likely as markets digest more good news.

The S&P 500 closed at 3,380.35 on Wednesday, up 5% year-to-date.

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