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The S&P 500 could stay put for the rest of the year, says Ed Yardeni.
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The market expert believes that there will be no more interest rate cuts by the Fed until 2025 because the economy remains strong.
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U.S. government debt will also continue to rise, limiting the Fed’s ability to cut rates, he said.
The stock market could hit a ceiling for a while, said market veteran Ed Yardeni.
The longtime investor and president of Yardeni Research said he sees limited options for central bankers to cut rates, thanks to the strength of the U.S. economy and the troubling outlook for the federal debt balance.
That means further policy easing may not happen until 2025 — and the S&P 500 could hover around 5,800 through the end of the year, he said in a recent note to clients.
That would mean a gain of less than 1% for the benchmark index over the next two months.
Stock prices have not risen “anywhere fast” since the Fed made a massive rate cut in September, Yardeni said. The S&P 500 is up 2% since the Fed’s last policy meeting, while the equal-weighted S&P 500 index is up 3.8%.
“We don’t expect it to go fast for the rest of this year either, around 5,800. The fiscal policy outlook is likely to remain unsettled after the election, and the Fed may not cut the FFR for the remainder of this year. Yardeni wrote.
Yardeni pointed to the strength of recent economic data, which suggests further rate cuts may not emerge from this week’s Fed meeting or in December.
First, real GDP growth was strong in the third quarter, up 2.8% year-on-year.
Investments in business equipment increased by 11% in the third quarter, after an increase of almost 10% in the previous quarter. Investments in information processing equipment in particular reached a record high, according to data from the Bureau of Economic Analysis.
Weakness in the labor market is worrying some investors, with the US adding far fewer payrolls than expected in October. Still, analysts say the labor market weakness is at least partly the result of events like union strikes and Hurricanes Helene and Milton.
Importantly, the unemployment rate remained at an all-time low last month at 4.1%.
“The bond market agrees with our view that the Fed cut the FFR too much, too quickly,” Yardeni added, pointing to the recent rise in bond yields, which points to higher interest rate expectations among bond investors.
Meanwhile, government borrowing appears likely to rise in the coming months, a factor that economists say could indirectly fuel inflation and therefore limit the Fed’s ability to cut rates.
“What can we expect when the current debt limit suspension expires on January 2? A divided government could force the Treasury Department to take extraordinary measures (as it did early last year) to fund the government while Congress debates the ever-increasing debt limit. A debt crisis in the bond market may be needed to rein in Washington’s fiscal excesses,” Yardeni said.
Yardeni has previously warned clients about the possibility that the Fed may not make further interest rate cuts in 2024. However, most investors expect the Fed to cut rates by 25 basis points this week and cut them by the same amount in December, the CME said. FedWatch tool.
Some forecasters have even suggested another massive rate cut this year, as the labor market could be weaker than it appears at first glance.
Read the original article on Business Insider
