Market Data 
Yardeni Research has raised its year-end target for the to 5,800 from 5,400, citing an accelerated discounting of their “Roaring 2020s” scenario.
The firm emphasized that the stock market is surpassing expectations, driven by momentum and bullish sentiment. “We’ve been among the most bullish investment strategists since November 2022, but not bullish enough. The bull market might continue to achieve our targets ahead of schedule,” Yardeni noted.
Since June, the market has experienced a “slow-motion meltup,” propelled by weaker-than-expected economic indicators and increasing odds of Federal Reserve rate cuts, highlights the firm.
They add that the federal funds rate futures market is signaling four 25bps rate cuts over the next 12 months, with potential cuts starting in September, as suggested by Fed Chair Jerome Powell’s congressional testimony.
Tomorrow’s CPI report could further fuel this rate-cut euphoria if it surprises to the downside, according to Yardeni Research.
Despite the anticipated rate cuts, Yardeni believes they are unnecessary given the current economic strength. They explained that the Atlanta Fed’s GDPNow model estimates Q2 real GDP growth at 2.0%, up from the previous 1.5% estimate. Rate cuts could nevertheless drive the market higher, supported by the $6.15 trillion in money market mutual funds.
The bull market, led by AI stocks since the introduction of OpenAI’s ChatGPT, has been characterized by a narrowing breadth. However, Yardeni points out that even excluding the MegaCap-7, the remaining S&P 493 have also participated in the rally.
Yardeni expects the rally to broaden further with better-than-expected Q2 earnings and more companies leveraging AI to enhance productivity.
Comparing the current market to the late 1990s melt-up, Yardeni acknowledges the similarities but highlights stronger earnings support this time. The market capitalization of the S&P 500 Information Technology and Communication Services sectors has reached 42.4%, surpassing the 40.7% peak of March 2000.
Despite elevated bullishness indicated by the Bull/Bear Ratio at 3.50, Yardeni suggests this time might be different due to substantial money parked in short-term instruments, which could be unleashed with potential Fed rate cuts.
“Today’s Investors Intelligence report showed that the Bull/Bear Ratio was 3.50 this week,” said Yardeni. “Such elevated bullishness tends to be a bearish signal for contrarian traders. This time might be different.”
Overall, Yardeni Research remains optimistic about the S&P 500’s trajectory, targeting 8,000 by the end of the decade.
