(Bloomberg) — Ahead of the Federal Reserve meeting and Big Tech earnings later this week, Ed Yardeni has some words of comfort: the worst has passed for this bear market.
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In the view of the Yardeni Research president, the S&P 500’s plunge last month to a 3,666.77 low likely marked the trough of the 2022 equity rout. Underpinning the sanguine call is the resilience in corporate earnings and the still-healthy outlook for consumers and businesses even as the economy slows.
“It’s never easy to pick a bottom in the stock market, but I’m going to give it a try,” Yardeni said on Bloomberg TV. “The real question is going to be the earnings season, and so far the earnings season is going reasonably well. It has not really thrashed the stock market, and the stock market’s held up quite well.”
The statement is a large one ahead of a decisive week — the Fed looks all set for another supersized interest-rate hike on Wednesday, while most mega-cap technology companies, including Alphabet Inc, Apple Inc, Amazon.com Inc, Microsoft Corp and Meta Platforms Inc, will release their earnings reports.
Yardeni appears to be in the minority. In Bank of America Corp.’s survey this month, money managers said they’ve cut their equity exposure to the lowest level since the 2008 financial crisis, a sign of no faith in recent market bounce. At the end of June, a Deutsche Bank AG poll showed 72% of respondents expected the S&P 500 to fall to 3,300 first, rather than rallying to 4,500.
But if Yardeni’s track record is any indication, it’s worth heeding the view of a market veteran who coined terms like “Fed Model” and “bond vigilante.” The strategist, who worked at Oak Associates Ltd. and Deutsche Bank before founding his namesake research firm, called the equity bottom the same month when the 1982 bear market ended. He then repeated the success in March 2009 when the S&P 500 reached an intraday low of 666.79 — 3,000 points below this year’s trough in what he calls another “devilish number.”
While failing to foresee the turn after the dot-com crash in 2002, Yardeni predicted that the 1987 bear cycle would be short-lived less than two months before stocks staged a sustained recovery.
The S&P 500 has climbed 8% since its mid-June low, staging its longest recovery of the year after sinking more than 20% during the first half. Stocks have tumbled amid concern that the Fed’s aggressive monetary tightening could tip the economy into a recession. Now with commodity prices falling and data pointing to a slowdown, the hope is that inflation pressures may finally be peaking.
Although Yardeni said that Thursday’s reading on second-quarter gross domestic product could turn negative — marking a second straight quarter of contraction — he would consider it a “mid-cycle slowdown.”
“I don’t see a hard landing,” he said.
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