Ed Yardeni lowers stock market expectations due to growing risk of recession
Wall Street veteran Ed Yardeni is increasingly pessimistic about the state of the economy, and therefore less sanguine about his stock market outlook. Yardeni’s research chief on Wednesday raised his chance of a recession to 40% over the next year, from 30% previously, due to concerns that “we could go into one recession.” At the same time, it lowered its forecast for the S&P 500 index. Its new price target is a range of 3,825 to 4,335, a cut from 4200 to 5000 previously. This means that Yardeni sees the index falling 3% in the worst case scenario and up 10% in the best case, based on Tuesday’s closing price. “We are raising the possibility of a recession due to rapidly spreading pessimism about the economic outlook,” Yardeni wrote in his daily market report. “We could all go into a recession. If a recession is about to occur, it will be the most widely anticipated downturn in history.” The big difference he sees this year compared to previous market downturns is that the market can no longer count on the Federal Reserve to step in and stop the carnage. Major indices have posted sharp declines since peaking in late 2021 and early this year, with the Nasdaq entering bear market territory. Federal Reserve officials have repeatedly stated that their primary task is to stop hyperinflation, stressing that financial conditions, including stock prices, need to tighten so that prices generally fall. “So the Fed’s situation is cliched,” Yardeni said. “That explains the downtrend of the market so far this year, which is cutting deeper and lasting longer than a typical panic attack. But this will not end until inflation regresses significantly on its own or with the help of a Fed slump either by design or By accident “. Yardini added that he still believed the US could avoid a recession as inflation moderates during the year and reduces the need for tough Fed action. However, he said that consumer and business confidence will be important influencing factors in the way things are going. Markets will be watching later on Wednesday when the Federal Reserve releases minutes from its meeting earlier this month in which it raised benchmark interest rates by 50 basis points. The minutes will provide more insight into the thinking behind the move and how policy makers feel about the future direction of policy.