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Ed Yardeni said the record stock market rally will get a boost from key economic data and earnings results.
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Second-quarter GDP and June personal consumption expenditure data on Thursday and Friday could bolster the soft landing narrative.
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Yardeni stressed that the company’s strong earnings and profit margins support the market in a way that they did not in 2000.
the The stock market is expected to continue rising. This week, as investors digest two key pieces of economic data and an onslaught of second-quarter earnings results.
That’s according to a note Monday from Yardeni Research, which highlighted the Upcoming release of Q2 GDP and June PCE data As a key to the continued rise of the stock market.
“We expect the strong second-quarter real GDP reading on Thursday and the weak June inflation reading on Friday to continue the rally,” Ed Yardeni said in the note.
Economists estimate that second-quarter GDP growth will reach 1.9%, and that the core personal consumption expenditures index will rise 2.5% year-on-year in June, which is not far from the Federal Reserve’s long-term inflation target of 2%.
If the economic data comes in as expected, it will allow talk of a soft landing in the US economy to continue and give the Fed a chance to recover. More reasons to cut interest rates At a policy meeting held in September.
And while Bearish investors claim that the market is overvalued. But Yardeni Research doesn’t believe this is the case, saying the rally will continue and that stocks have entered bubble territory similar to the dot-com era.
This is because the record stock market rally in 2011 was powered by core corporate earnings in a way that was not the case 24 years ago.
“We have acknowledged that the current stock market rally is reminiscent of the 1990s market crash due to high market cap,” Yardeni said. “But we have also noted that the current bull market is being supported more by earnings.”
The research company highlighted that the combination of Standard & Poor’s 500 The allocation to the information technology and communications services sectors is 41%, which is similar to its peak in 2000.
But while these two sectors accounted for less than a quarter of the S&P 500’s earnings at the height of the dot-com bubble, today these two technology-focused sectors account for a third of the S&P 500’s future earnings per share.
What encourages Yardeni is the fact that second-quarter earnings are already paying off.
According to data from Fundstrat, 16% of S&P 500 companies have reported second-quarter earnings so far, and 84% of them have beaten earnings estimates by an average of 4%, while 63% have beaten revenue estimates by an average of 3%.
“So far, the second-quarter earnings reporting season is going well,” Yardeni said. “The S&P 500’s reported/estimated earnings growth rate has halted its recent slide and edged up slightly to 8.2% year-over-year during the week of July 18. We expect 10% to 12% year-over-year growth.”
Looking ahead, Yardeni expects the S&P 500 to rise. The company expects to achieve significant growth in its earnings per share over the next few years.
“We expect S&P 500 EPS to be $250, $270 and $300 in 2024, 2025 and 2026, respectively,” Yardeni said. “We are slightly more bullish than the industry consensus this year, but less so in the next two years. We still expect S&P 500 EPS to be $400 by the end of the decade.”
Finally, Yardeni confirmed that profit margins continue to trend upwards to near record highs, indicating that earnings and economic growth will continue to impress in the second and third quarters.
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