Long-time stock market bull and Yardeni Research President Ed Yardeni is speaking out about a possible “melt-up” as stocks hit all-time highs — and are hence becoming too expensive.
“I’m not convinced that if Trump loses and a Democrat wins, that it necessarily implies a bear market and a recession. But I think initially the market would not react well to a change.”
If the S&P 500’s forward earnings multiple rises to 19 or 20, it could spark a “nasty correction,” Yardeni said. The index is currently at 17 and the normal range is 15 to 16, according to CNBC.
“I just don’t want too much of a good thing here. I’d like this bull market to continue at a leisurely pace not in a melt-up fashion,” Yardeni said Friday on CNBC’s “Trading Nation” program. “That’s actually the risk.”
Yardeni spent several decades on Wall Street as an investment strategist for Prudential and Deutsche Bank, and he projected 2019 to be a big year for stocks, even as the market cratered in December of 2018. The S&P 500 and Dow Jones Industrial Average both closed at record highs on Thursday on positive news regarding the trade war between the U.S. and China.
“If the market gets ahead of itself and gets to 3,500 a lot sooner … I may have to consider taking some profits,” Yardeni said. “I’d much rather stay fully invested in this bull market and not be forced to jump out just because it is ridiculously overvalued.”
If he does take profits soon, he said he won’t be out of the market long.
“I’m sticking with this bull market,” he said. “I think it’s going to continue to see higher levels.”
Yardeni then added that his forecast for 2020 is not contingent on who wins the 2020 presidential election, including whether incumbent President Donald Trump wins another term, or if a Democrat moves into the White House.
“I’m not convinced that if Trump loses and a Democrat wins, that it necessarily implies a bear market and a recession,” Yardeni said. “But I think initially the market would not react well to a change.”