Ever since the U.S. economy began to recover from the pandemic, market veteran Ed Yardeni has been touting a new Roaring Twenties to drive Wall Street.
Now, with Donald Trump back in the White House, Republicans retaking the Senate, and the House likely to remain in the Republican majority, a 10-year bullish return looks more likely. Moreover, the period may be prolonged.
“Indeed, the good times are increasingly likely to continue until the end of this decade and possibly into the 2030s,” Yardeni, president of Yardeni Research, said in a note Wednesday.
This decade is already off to a strong start. Barring a slump in 2022 when the Fed began an aggressive rate hike cycle, the S&P 500 has posted double-digit returns every year and is already up nearly 26% so far in 2024.
This comes after the market had its best week in a year, with markets rallying in the wake of Trump's decisive victory, which is seen as a sure-fire Republican victory. For the week, the S&P 500 rose 4.7%, the Dow Jones Industrial Average rose 4.6%, the Nasdaq rose 5.7% and the small-cap Russell 2000 rose 4.7% for the week as investors bet on tax cuts and deregulation to further stimulate the economy. rose by 8.6%.
“We remain steadfast in our investment recommendation of staying at home, not going global,” Yardeni wrote. “In other words, overweighting the U.S. in global stock portfolios.”
Of course, the Roaring Twenties a century ago ended infamously with the stock market crash of 1929, which triggered the Great Depression that lasted into the 1930s.
And Yardeni envisions a different scenario for this century. But a new Roaring Twenties is most likely at 50%, a 1990s-like stock market “crash” at 20%, and a 1970s with a possible US debt crisis. The probability of such a geopolitical crisis is 30%. .
“However, the relaxed regulatory environment and lower corporate and income taxes under Trump 2.0 should encourage investment and foster productivity-led economic growth, raising the odds of a Roaring 2020s scenario.” “We are considering it,” he added.
Yardeni also warned of “bond vigilantes” pushing up yields as the outlook for U.S. debt and deficits continues to worsen. President Trump's tax cuts and tariffs are also expected to lead to inflation, limiting the Fed's ability to lower interest rates further.
However, Scott Bessent, who has been floated as a candidate for Treasury secretary in the Trump administration, said lower energy prices and deregulation could eliminate inflation and offset the potential inflationary effects of higher tariffs. .
“We share that view, but we will also add productivity improvements to this,” Yardeni said. “In addition to a tight labor market, continued investment in new technologies such as AI, robotics, and automation will help reduce unit labor costs and thus inflation.”
Others on Wall Street are also stressing the possibility of another Roaring Twenties, including a UBS analyst who said before the election there was a 50% chance of a boom. Also included.
But Dan Ivascyn, chief investment officer at fixed income giant Pimco, was more cautious about the impact of Trump's policies on the economy and financial markets.
he said this finance times On Friday, he said there was a risk the economy would “overheat” under a second Trump administration, threatening Fed interest rate cuts and the stock market.
“It's not as simple and easy as a one-way reflation trade, which risk assets should be happy about,” Ivascyn said. F.T.. “Be a little careful about what you wish for.”
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