Investment guru Ed Yardeni says reports of the bull market’s demise are premature, despite December’s stock bloodbath.
Yardeni, who spent decades on Wall Street running investment strategy for firms such as Prudential and Deutsche Bank, predicted to CNBC that stocks will break out to all-time highs this year.
He's partly building his bull case based on a chart pointing to negative market sentiment, CNBC explained.
"At the end of last year the bull-bear ratio, which is something we watch from Investors Intelligence, fell below one," the Yardeni Research president told CNBC. "It's got an awfully good track record as a contrary indicator," he said.
Each time the index last year spiked to either record or near record highs, Yardeni found the S&P 500 Index entered correction territory. It appears an opposite trend is unfolding right now, CNBC explained.
"Bearishness was just so widespread that the market had a technical bounce, and now the fundamentals are going the right way," added Yardeni, who also is a Newsmax Finance Insider.
"A lot of these things seem to be coming around in the right direction here, and so the markets have done extremely well," he said.
The S&P 500 closed out the third week of January out of correction. The index now on its longest win streak since August — up four weeks in a row on signs U.S.-China trade tensions may be abating and encouraging fourth quarter earnings reports.
Yardeni said those factors are ultimately driving a year-long powerful market rebound. He predicted the S&P 500 will be more than 15 percent higher from current levels by year's end.
"I'm still sticking with 3,100 and feel better about it," said Yardeni, while the S&P closed Tuesday at 2,632.90.
Naturally, not everyone is as optimistic.
For example, a multiyear bubble in American stocks is now deflating as sentiment turns negative despite solid fundamentals, and investors should own as few U.S. equities as possible, according to GMO LLC.
The size and duration of the moves in stock prices in the final three months of 2018 toward their long-term average valuation is consistent with the moves linked with the bursting of the technology boom in early 2000 and the crash of 1929, Bloomberg reported, citing Martin Tarlie, part of the asset-allocation team at the firm overseeing about $70 billion.
“The volatility is consistent with a bubble bursting,” he wrote, “though we caution that it is possible that the fourth-quarter move in the mean reversion speed could be a head fake.” The bubble could even reflate, as it did in 1998-2000, he said.
Boston-based GMO is co-founded by Jeremy Grantham, 80, who is known for his prescient warnings of asset-price peaks before 2000 and 2008. He’s drawn skepticism for his often bearish stance during the current bull market in stocks as funds under management at the firm declined. Also, he said in January 2018 there might be a “melt-up” in stocks, just a few weeks before the volatility meltdown.
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