- Moderating inflation and a resilient economy suggest to Ed Yardeni that the Roaring 20's have returned.
- Yardeni said a period of solid growth is in store for the stock market between now and 2025.
- Yardeni now expects the S&P 500 to surge about 30% from current levels to 6,000 by the end of 2025.
Moderating inflation, a resilient economy, and a boom in productivity are all the necessary ingredients for a "Roaring 20's" scenario that will drive the stock market significantly higher over the next two years.
That's according to market veteran Ed Yardeni, who said in a Sunday note that the S&P 500 is on track to hit record highs in 2024 as corporate earnings surge.
Yardeni took it a step further in his client note and said that by the end of 2025, the S&P 500 will trade at 6,000, representing potential upside of 30% from current levels.
"We are now raising our [S&P 500] year-end 2025 target to 6,000 with 2026 earnings at $300 per share and a forward price-to-earnings ratio of 20. That's because we are seeing more reasons to believe in our Roaring 2020s scenario," Yardeni said.
Yardeni had previously forecasted that the S&P 500 would trade at 5,800 by the end of 2025. Meanwhile, he has a 2024 year-end price target of 5,400 for the S&P 500, which is the most bullish forecast on Wall Street.
Inflation is a key metric for investors to pay attention to, as it will inform the Federal Reserve's upcoming interest rate decisions, Yardeni highlighted. The November CPI report, which is set to be released Tuesday morning, will likely fall thanks to a steady decline in gasoline prices over the past few months, according to Yardeni.
If Yardeni is correct, this should lead to Fed Chairman Jerome Powell admitting a quasi-victory against inflation at his upcoming press conference on Wednesday.
"Our bet is that he [Powell] will acknowledge that if inflation continues to moderate towards the Fed's 2.0% target next year, the FOMC will probably lower the federal funds rate so that the real federal funds rate doesn't get even more restrictive. That would be bullish," Yardeni explained.
Such a scenario would increase the chances of a soft landing of the economy, in which the Fed averts a recession and brings down inflation. If the Fed is cutting rates because inflation has been tames, and not because the economy is entering a recession, it should bode well for Yardeni's bullish forecast of the Roaring 2020s over the next few years.