Joining the lastest webinar with Dr. Edward Yardeni, president of Yardeni Research, who shares his financial market forecasts for 2025. Below are his eight key predictions:
- Tariffs as a Strategic Tool in Trade Negotiations
- Trump’s Tariffs May Not Cause Inflation
- No Need for Overconcern About Inflation: PCE Remains Manageable
- The Roaring 2020s: Dr. Yardeni’s Bullish Market Outlook
- U.S. Economy Shows Steady Growth, Fed May Not Need to Cut Rates Further
- 4.5% Treasury Yield is at a Healthy & Investable Level
- AI Innovation Drives Investment and Bullish Equity Sentiment
- Valuations May Be High, But Earnings Growth is Key—S&P 500 Could Reach 7,000 This Year
1. Tariffs as a Strategic Tool in Trade Negotiations
The Trump administration utilized tariffs as a strategic negotiation tool, rather than merely a protectionist measure.The goal is to pressure countries with high tariffs on U.S. goods to lower their trade barriers. Trump, as a dealmaker, believes in creating agreements where both sides feel they have gained something.
Trump’s objective is to address trade imbalances, national security, and unfair trade practices.
By imposing or threatening tariffs, Trump aims to pressure other countries into making concessions. For instance, after threatening 25% tariffs on Canada and Mexico, he quickly postponed them for 30 days, as these countries agreed to strengthen border security to prevent illegal immigration and drug trafficking.
2. Trump’s Tariffs May Not Cause Inflation
Dr. Ed stated that if we were to look at the Trump 1.0 era, we could see that the tariffs imposed on China did not significantly contribute to inflation. A key factor was the tariffs' role in bolstering the U.S. dollar. Even though tariffs may be passed on to consumers, a stronger dollar enabled them to purchase more goods, thereby offsetting the impact of the tariffs to some extent.
3. No Need for Overconcern About Inflation: PCE Remains Manageable
Recent CPI data indicates favorable trends in goods inflation. Durable goods have even dipped into slight deflation, while food and energy inflation is near zero. Although non-durable goods prices have rebounded slightly, they remain within a reasonable range. This suggests that services inflation remains the primary challenge. Within services, rising auto insurance costs are a major contributor to inflation.
Additionally, rents carry excessive weight in the CPI, and their price stickiness is slowing the pace of disinflation.
Overall, though, PCE inflation—the Fed’s preferred gauge—is at 2.5%, which isn’t too concerning. With a 2% target, the Fed may opt to hold rates steady and let market forces continue driving inflation lower. A rebound in productivity will also play a key role in easing inflation further.
4. The Roaring 2020s: Dr. Yardeni’s Bullish Market Outlook
Dr. Ed compares the current decade to the Roaring 1920s, citing post-pandemic recovery, technological breakthroughs, and trade conflicts. He anticipates that AI and automation will enhance productivity, fueling wage growth, economic expansion, and a reduction in the U.S. deficit-to-GDP ratio.
While he assigns a 55% probability to the "Roaring 2020s" scenario, he also sees a 25% chance of a melt-up, warning that excessive market exuberance could lead to a bubble. Despite risks like a debt crisis, political uncertainty, and inflation surprises, Dr. Ed remains optimistic about the market’s long-term strength.
5. U.S. Economy Shows Steady Growth, Fed May Not Need to Cut Rates Further
Dr. Ed believes the Federal Reserve does not need to lower interest rates further, arguing that the Fed’s decision to cut rates in September 2024 was a mistake, as the economy remained strong and inflation had not yet reached 2%. He deems current interest rates suitable, noting that the 4.5% yield on the 10-year Treasury aligns with historical norms for a robust economy.
Lowering rates too soon, he warns, could lead to excessive speculation in the stock market, similar to the tech bubble of 1999 and 2000, potentially causing a market crash. While the Fed’s models suggest a neutral rate of around 3%, as indicated in its quarterly summary of economic projections, Dr. Yardeni disagrees. He states that despite looking at the same data as the Fed, he does not see a compelling reason for the federal funds rate to drop all the way to 3%, emphasizing that the Fed should acknowledge economic strength rather than push for aggressive rate cuts.
6. 4.5% Treasury Yield is at a Healthy & Investable Level
Dr. Ed believes that the current 4.5% yield on U.S. Treasuries is reasonable and indicative of a strong economy, considering it a normal level similar to those before the Great Financial Crisis. He regards it as a secure and appealing option for investors prioritizing low-risk assets with competitive returns, emphasizing that U.S. Treasuries remain secure since the government will not default. Given these factors, he sees 4.5% as an appropriate and investable level in the current economic environment.
However, Dr. Ed points out that this yield remains attractive only if there are no further rate hikes and the debt crisis remains under control. While rate cuts could influence bond allocations, he does not see them as the primary driver for investment decisions. Instead, he suggests that investors consider increasing their exposure to gold as an alternative strategy.
7. AI Innovation Drives Investment and Bullish Equity Sentiment
Although it's still too early to say for sure, Dr. Ed believes that investment in A.I. will persist. As more major companies, like the Magnificent 7, invest billions of dollars in data center infrastructure, our capacity to process information grows. Deepseek has demonstrated how cost-effective and rapid A.I.-driven data processing can be. Ultimately, whether A.I. becomes the next revolutionary force is secondary.
Dr. Ed contends that the market enthusiasm surrounding DeepSeek’s innovation will bolster a bullish outlook for U.S. equities. This view is rooted in his belief in entrepreneurial capitalism. He stated that no matter how successful a company becomes, a competitor will always emerge, finding a way to outperform DeepSeek’s approach at a lower cost. This competitive dynamic ultimately drives US companies to perform better, reinforcing the bullish outlook on US stocks.
8. Valuations May Be High, But Earnings Growth is Key—S&P 500 Could Reach 7,000 This Year
Dr. Ed recognizes elevated stock market valuations but cautions against a rally fueled exclusively by multiple expansion, as it could lead to a speculative "melt-up" scenario similar to 1999. Instead, he believes that earnings growth will be the primary driver of higher stock prices. He expects better-than-anticipated economic growth and productivity, which could push S&P 500 earnings to $285 per share this year and $320 per share in 2025. By the end of the decade, he projects earnings to reach $400 per share. Based on these forecasts, he sees the S&P 500 reaching 7,000 by the end of 2024, 8,000 by 2026, and potentially 10,000 by 2029, all fueled mainly by strong corporate earnings. Despite high valuation multiples, he asserts that robust earnings growth will underpin the market’s upward momentum.
Lucky Draw & Dashboard – Don’t Miss Out!
In addition to offering this webinar for free, we're also hosting a lucky draw! Simply watch and leave a comment below before March 1st for a chance to win. One lucky winner will receive a one-month membership to MM Prime, while another will get a one-month membership to Yardeni Research.
We've also compiled the key charts mentioned in this interview—feel free to save them for future reference!
Joining the lastest webinar with Dr. Edward Yardeni, president of Yardeni Research, who shares his financial market forecasts for 2025. Below are his eight key predictions:
- Tariffs as a Strategic Tool in Trade Negotiations
- Trump’s Tariffs May Not Cause Inflation
- No Need for Overconcern About Inflation: PCE Remains Manageable
- The Roaring 2020s: Dr. Yardeni’s Bullish Market Outlook
- U.S. Economy Shows Steady Growth, Fed May Not Need to Cut Rates Further
- 4.5% Treasury Yield is at a Healthy & Investable Level
- AI Innovation Drives Investment and Bullish Equity Sentiment
- Valuations May Be High, But Earnings Growth is Key—S&P 500 Could Reach 7,000 This Year
1. Tariffs as a Strategic Tool in Trade Negotiations
The Trump administration utilized tariffs as a strategic negotiation tool, rather than merely a protectionist measure.The goal is to pressure countries with high tariffs on U.S. goods to lower their trade barriers. Trump, as a dealmaker, believes in creating agreements where both sides feel they have gained something.
Trump’s objective is to address trade imbalances, national security, and unfair trade practices.
By imposing or threatening tariffs, Trump aims to pressure other countries into making concessions. For instance, after threatening 25% tariffs on Canada and Mexico, he quickly postponed them for 30 days, as these countries agreed to strengthen border security to prevent illegal immigration and drug trafficking.
2. Trump’s Tariffs May Not Cause Inflation
Dr. Ed stated that if we were to look at the Trump 1.0 era, we could see that the tariffs imposed on China did not significantly contribute to inflation. A key factor was the tariffs' role in bolstering the U.S. dollar. Even though tariffs may be passed on to consumers, a stronger dollar enabled them to purchase more goods, thereby offsetting the impact of the tariffs to some extent.
3. No Need for Overconcern About Inflation: PCE Remains Manageable
Recent CPI data indicates favorable trends in goods inflation. Durable goods have even dipped into slight deflation, while food and energy inflation is near zero. Although non-durable goods prices have rebounded slightly, they remain within a reasonable range. This suggests that services inflation remains the primary challenge. Within services, rising auto insurance costs are a major contributor to inflation.
Additionally, rents carry excessive weight in the CPI, and their price stickiness is slowing the pace of disinflation.
Overall, though, PCE inflation—the Fed’s preferred gauge—is at 2.5%, which isn’t too concerning. With a 2% target, the Fed may opt to hold rates steady and let market forces continue driving inflation lower. A rebound in productivity will also play a key role in easing inflation further.
4. The Roaring 2020s: Dr. Yardeni’s Bullish Market Outlook
Dr. Ed compares the current decade to the Roaring 1920s, citing post-pandemic recovery, technological breakthroughs, and trade conflicts. He anticipates that AI and automation will enhance productivity, fueling wage growth, economic expansion, and a reduction in the U.S. deficit-to-GDP ratio.
While he assigns a 55% probability to the "Roaring 2020s" scenario, he also sees a 25% chance of a melt-up, warning that excessive market exuberance could lead to a bubble. Despite risks like a debt crisis, political uncertainty, and inflation surprises, Dr. Ed remains optimistic about the market’s long-term strength.
5. U.S. Economy Shows Steady Growth, Fed May Not Need to Cut Rates Further
Dr. Ed believes the Federal Reserve does not need to lower interest rates further, arguing that the Fed’s decision to cut rates in September 2024 was a mistake, as the economy remained strong and inflation had not yet reached 2%. He deems current interest rates suitable, noting that the 4.5% yield on the 10-year Treasury aligns with historical norms for a robust economy.
Lowering rates too soon, he warns, could lead to excessive speculation in the stock market, similar to the tech bubble of 1999 and 2000, potentially causing a market crash. While the Fed’s models suggest a neutral rate of around 3%, as indicated in its quarterly summary of economic projections, Dr. Yardeni disagrees. He states that despite looking at the same data as the Fed, he does not see a compelling reason for the federal funds rate to drop all the way to 3%, emphasizing that the Fed should acknowledge economic strength rather than push for aggressive rate cuts.
6. 4.5% Treasury Yield is at a Healthy & Investable Level
Dr. Ed believes that the current 4.5% yield on U.S. Treasuries is reasonable and indicative of a strong economy, considering it a normal level similar to those before the Great Financial Crisis. He regards it as a secure and appealing option for investors prioritizing low-risk assets with competitive returns, emphasizing that U.S. Treasuries remain secure since the government will not default. Given these factors, he sees 4.5% as an appropriate and investable level in the current economic environment.
However, Dr. Ed points out that this yield remains attractive only if there are no further rate hikes and the debt crisis remains under control. While rate cuts could influence bond allocations, he does not see them as the primary driver for investment decisions. Instead, he suggests that investors consider increasing their exposure to gold as an alternative strategy.
7. AI Innovation Drives Investment and Bullish Equity Sentiment
Although it's still too early to say for sure, Dr. Ed believes that investment in A.I. will persist. As more major companies, like the Magnificent 7, invest billions of dollars in data center infrastructure, our capacity to process information grows. Deepseek has demonstrated how cost-effective and rapid A.I.-driven data processing can be. Ultimately, whether A.I. becomes the next revolutionary force is secondary.
Dr. Ed contends that the market enthusiasm surrounding DeepSeek’s innovation will bolster a bullish outlook for U.S. equities. This view is rooted in his belief in entrepreneurial capitalism. He stated that no matter how successful a company becomes, a competitor will always emerge, finding a way to outperform DeepSeek’s approach at a lower cost. This competitive dynamic ultimately drives US companies to perform better, reinforcing the bullish outlook on US stocks.
8. Valuations May Be High, But Earnings Growth is Key—S&P 500 Could Reach 7,000 This Year
Dr. Ed recognizes elevated stock market valuations but cautions against a rally fueled exclusively by multiple expansion, as it could lead to a speculative "melt-up" scenario similar to 1999. Instead, he believes that earnings growth will be the primary driver of higher stock prices. He expects better-than-anticipated economic growth and productivity, which could push S&P 500 earnings to $285 per share this year and $320 per share in 2025. By the end of the decade, he projects earnings to reach $400 per share. Based on these forecasts, he sees the S&P 500 reaching 7,000 by the end of 2024, 8,000 by 2026, and potentially 10,000 by 2029, all fueled mainly by strong corporate earnings. Despite high valuation multiples, he asserts that robust earnings growth will underpin the market’s upward momentum.
Lucky Draw & Dashboard – Don’t Miss Out!
In addition to offering this webinar for free, we're also hosting a lucky draw! Simply watch and leave a comment below before March 1st for a chance to win. One lucky winner will receive a one-month membership to MM Prime, while another will get a one-month membership to Yardeni Research.
We've also compiled the key charts mentioned in this interview—feel free to save them for future reference!
