Since the US economy began to rebound from the pandemic, market veteran Ed Yardeni has been beating the drum that a new “Roaring 20s” will drive Wall Street.
Now that Donald Trump is back in the White House, Republicans have retaken the Senate, and the House remains in GOP control, a decade of rising returns is not only unlikely, but may have longer legs.
“Indeed, it increases the chances that the good times will continue through the end of the decade and possibly into the 2030s,” Yardeni Research president Yardeni wrote in a note Wednesday.
This decade is already off to a strong start. Barring a down year in 2022, when the Federal Reserve began an aggressive rate hike cycle, the S&P 500 has posted double-digit returns every year and is already up nearly 26% in 2024.
This comes after the markets had their best week in a year, following Trump’s decisive victory, as the Republicans turned out. During the week, the S&P 500 has increased by 4.7% Dow The Jones Industrial Average gained 4.6% Nasdaq It jumped 5.7%, while the small-cap Russell 2000 rose 8.6%, as investors bet on lower taxes and deregulation injecting more juice into the economy.
“We stick to our investment recommendation to stay home rather than go global,” Yardeni wrote. “In other words, the US is overweight in global equity portfolios.”
Of course, the Roaring 20s a century ago ended with the stock market crash of 1929, which sparked the Great Depression that lasted through the 1930s.
And for his part, Yardeni sees other scenarios in this century. But his view for the new Roaring 20s is the most likely with a 50% probability, while a stock market “meltdown” in the 1990s has a 20% probability, and a 1970s geopolitical crisis with a possible US debt crisis has a 30% probability. .
“But we are looking at increasing the odds of the Roaring 2020s scenario, as a looser regulatory environment and lower corporate and income taxes under Trump 2.0 should spur investment and boost productivity-driven economic growth,” he added.
Yardeni also warned “link supervisors” sending yields higher as the U.S. debt and deficit outlook continues to worsen. Trump’s tax cuts and tariffs are also considered inflationary, limiting the Fed’s ability to cut rates further.
But Scott Bessent, who has been floated as a possible Treasury secretary under Trump, has argued that lower energy prices and deregulation are disinflationary and could offset the potential inflationary effects of higher tariffs.
“We agree with that vision, but we would also add productivity growth to the mix,” Yardeni said. “Tight labor markets and continued investment in new technologies like AI, robotics and automation will help keep unit labor costs down and thus inflation.”
Others on Wall Street have also highlighted the potential for another Roaring 20s, including UBS analysts before the election he said that the probability of the economic cycle going up was 50%.
But Dan Ivascyn, chief investment officer at bond giant PIMCO, was more cautious about the effects of Trump’s policies on the economy and financial markets.
He told her finance The times on Friday that the economy risks “overheating” under a second Trump administration, threatening Fed rate cuts and the stock market.
“It’s not as simple and straightforward as a one-way reflation trade where risk assets have to be happy,” Ivascyn said. FT. “Be careful what you wish for.”
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