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Tags: ed yardeni | stock | market | plunge

Ed Yardeni: 20% Plunge Could Rock Stock Market Early in 2020

(Mark Aplet/Dreamstime)

By    |   Monday, 30 December 2019 05:03 PM EST

Newsmax Finance Insider Ed Yardeni warns that the seemingly endless bull-run stock market could be smacked with a 10% to 20% pullback early in the new year.

The long-time bull told CNBC that believes the record rally has no other option but to pause because valuation multiples are hitting lofty levels.

“I’m concerned about a possible melt-up here,” the Yardeni Research president told CNBC.

“I’ve been shooting for 3,500 for the S&P 500 by the end of next year, and we’re getting closer. Faster than I would have expected,” he said.

″[A] 10% to 20% [correction] would be quite possible if this market gets to 3,500 well ahead of my schedule,” he said.

“Bull markets do best when you’ve got a wall of worries,” Yardeni said. “What I’m worrying about is nobody is worried anymore.”

However, Yardeni sees no recession through 2021.

“Looking at 2020, I’m expecting earnings to be up 4% to 5%, which isn’t fabulous,” he said. “But it should be enough to get the market up to 3,500 by the end of next year.”

“This is not a cheap market,” Yardeni said. “In early October, I looked around and said ‘you know, maybe there’s some value overseas. So maybe you really got to look at emerging markets.’”

Meanwhile, Reuters explained that investors enter the new decade with a spring in their step, after watching world stocks add over $25 trillion in value in the past 10 years and a bond rally put $13 trillion worth of bond yields below zero.

There's unease, along with all the euphoria. The current economic cycle is already the longest in U.S. history and a recession looks inevitable in the new decade -- which also will mark 100 years since the Wall Street crash of 1929.

And solutions may need to be unconventional, even more so than the extraordinary policies of negative interest rates and bond-buying that eased the post-2008 global funk.

With those policies maxed out, "in the 2020s it seems inevitable that a world of helicopter money awaits," Deutsche Bank predicts.

That would entail central banks or governments providing citizens with large amounts of money, as though it was being dropped from helicopters, a strategy rejected even by the unorthodox policymakers of the 2010s.

Another radical option under discussion is modern monetary theory, when governments create and spend as much money as needed, so long as inflation stays low.

"Central banks have effectively invited governments to experiment with more unconventional policies," Deutsche said. However, those policies may pile up even more global debt, already at record highs.

So what will markets do?

A decade of rock-bottom interest rates didn't revive growth and inflation in developed nations, but they certainly inflated markets, as prices for bonds, equities and real estate show.

The inequality they spawned have also triggered a widespread backlash against globalization. The result is a de-globalizing world, or as Morgan Stanley puts it, "slow-balisation."

The bank expects tech investments to outperform, in particular smaller internet firms in China, as protectionism hurts larger rivals.

But it predicts less exciting returns -- "a lower and flatter frontier compared to prior decades, and especially compared to the ten years post-GFC (global financial crisis)."

Dr. Ed Yardeni is the President of Yardeni Research, Inc., a provider of independent global investment strategy research.

© 2024 Newsmax Finance. All rights reserved.

Newsmax Finance Insider Ed Yardeni warns that the seemingly endless bull-run stock market could be smacked with a 10% to 20% pullback early in the new year.
ed yardeni, stock, market, plunge
Monday, 30 December 2019 05:03 PM
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