-
The stock market could face a 10% correction even as economic strength supports a “no landing” scenario, according to Ed Yardeni.
-
Yardeni noted strong retail sales in March and an updated first-quarter GDP growth estimate of 2.8%.
-
“The US economy is still booming. That’s because consumers didn’t get the recession memo,” Yardeni said.
The continued strength of the U.S. economy supports a “no landing” scenario, but that doesn’t mean the stock market will dodge a 10% correction, according to market veteran Ed Yardeni.
Yardeni said in a note Monday that even after a strong retail sales report, the S&P 500 is at risk of testing its 200-day moving average at around 4,700 in the coming months.
“That would be a classic 10% correction,” Yardeni said.
Yardeni noted that rising government bond yields, with 10-year government bond yields hitting a yearly high of 4.69% on Tuesday, are starting to weigh on stock prices.
That’s reflected in the percentage of S&P 500 stocks trading above their 50-day moving average, which fell from the overbought level of about 80% last month to about 30% today.
“We are increasingly convinced that the S&P 500 reached a short-term top at 5254.35 on March 29. Since then, it has fallen 3.7% to 5061.82 today, falling below the 50-day moving average” , Yardeni said. “The market was overbought and could now be moving towards oversold.”
But a healthy correction in the stock market should not rule out the continued strength of the US economy.
Following strong retail sales data in March, which more than doubled economists’ expectations, Yardeni noted that the Federal Reserve’s estimate for first-quarter GDP growth was upgraded to 2.4% from a previous estimate. .8%. Since then, the Fed has raised its GDP growth estimate to 2.9%.
‘The American economy is still doing well. That’s because consumers didn’t get the recession memo. They keep spending because real disposable incomes are rising, more Americans are retiring and have the means to do so comfortably, and six million or more “newcomers.” “consume here instead of south of the border,” Yardeni said, referring to the influx of immigrants who are helping to boost the U.S. economy.
Read the original article on Business Insider
