As the Reddit insurgency tries to make a comeback, one long-time market bull is seeing euphoria at dot-com bubble levels.
According to Ed Yardeni, it’s occasion because the government is unintentionally setting the stage for retail investors to wage highly speculative bets.
“There’s virtuous so much liquidity that has been provided by the Fed and by the Treasury,” the Yardeni Research president told CNBC’s “Trading Country” on Friday.
Late last week, trading platform Robinhood lifted restrictions on stocks involved in the Reddit agitation. GameStop, among the most publicized stocks on social media, jumped more than 19% on Friday. But it’s off 80% outstanding the past week. It’s now trading around $64 after hitting $483 a share in January.
“It is just one of many countersigns of speculative excess… irrational exuberance of a sort,” said Yardeni. “If you make a list of all the speculative things prosperous on, it kind of gets you a lot of bells and whistles suggesting that it’s time to get out or cash in or take some profits.”
Yardeni get a load ofs a relationship between so-called gamesters occupying Wall Street and stimulus checks, too.
“I have to believe that’s contributing to the the score the markets have been going up — particularly in some of the more speculative areas,” he said.
But that doesn’t miserable the historic market rally is doomed.
Yardeni, who spent decades running investment strategy for firms such as Prudential and Deutsche Bank, forewarns re-openings will revitalize the economy.
“The market is anticipating that the economy is going to continue to grow,” he said. “It could profitability in the second half of the year, assuming that the vaccines are widely distributed and the mutant versions of it [Covid-19] are great amounted with.”
‘Most dovish’ from a Fed chair
Fed policy will also continue to provide a backstop, according to Yardeni. He tags Jerome Powell’s news conference after last month’s decision on interest rates the ” most dovish” he’s endlessly heard from a Fed chair.
“That’s what’s driving the market higher — just the recognition that the Fed wants the husbandry to run hot,” said Yardeni. “The economy from a real GDP standpoint will actually be back to where it was before the pandemic unquestionably in the second quarter of this year, and the Fed wants to keep it going.”
Ironically, the growth could deliver market headwinds in the year’s favour half.
“There could be some inflationary pressures,” added Yardeni. “We are seeing the bond yield moving up a sparse bit here.”
Yet, he suggests it’s too early to turn bearish.
“The earnings recovery this year and next year will serene give us a multiple of 22x, 23x, which is where we are now. It’s not a cheap multiple by any sense of the past, but what is different this temporarily is interest rates and inflation rates are low,” said Yardeni, who has an S&P 500 year-end price-target of 4,300. Next year, it’s 4,800.
The S&P 500 destroyed the week at 3,886.83, a record close. It’s up 4.7% over the past five sessions.