“The market has been a ray of sunshine – basically investors are confident that we will get out of this, and the economy will recover with profits. So far, this forecast seems to be working pretty well, “said the president of Yardeni Research. “Trading Nation” told CNBC on Friday. “The economy could very well catch up with the stock market rather than the self-triggering stock market. ”
The 2.5 million wage increase in May was the largest ever, while the unemployment rate fell to 13.3% from 14.7% in April. Street consensus forecasts had called for a 8.3 million drop in wages and an increase in the unemployment rate to 19.5%.
Yardeni thinks this is exactly what happened: Main Street started to bring back the dismissed workers after they got the funds.
Unless there is a second wave of virus infections, he believes the boost in employment is helping to set the stage for a sharp economic rebound this year before stabilizing by winter.
“It will be a V-[shape] initially, “said Yardeni. Real GDP could drop 40% to 50% in the second quarter. But the worse it is in the second quarter, the greater the likelihood of seeing something like a 20% increase in the third quarter. ”
He thinks it will be enough to drive the S&P 500 to records in the coming months – even exceeding its target of 3,521 by the end of 2021. On Friday, the index closed at 3193, 3% below the record. absolute from February 19.
“It was not that long ago that we were in the middle of a terrible stock market crisis. But it turned out to be a 33-day bear market spanning February 19 to March 23, “said Yardeni. “Since then, we have had a merger which is entirely linked to the arrival of the Fed with what I call QE4. “
“A fairly broad bull market”
His best advice to investors right now is to go with the flow.
“Since March 23, we have seen a rebalancing of bonds and stocks,” he said. “It will continue to be a theme here for the next few months – perhaps until the end of the year. So stocks rather than bonds make sense. ”
Yardeni’s top choices include technology, healthcare and finance.
“It will be a fairly large bull market here,” said Yardeni.