Since the U.S. economy began to recover from the pandemic, markets veteran Ed Yardeni has been drumming up a new “Roaring 20s” that will boost Wall Street.
Now, with Donald Trump back in the White House, Republicans retaking the Senate and the House likely to remain in Republican control, a decade of rising profits not only looks more likely not only more likely to occur, but also more likely to last longer.
“Indeed, it increases the likelihood that the good times will continue through the end of the decade and possibly into the 2030s,” Yardeni, president of Yardeni Research, wrote in a note Wednesday.
This decade is off to a strong start. Except for a down year in 2022, when the Federal Reserve began a cycle of aggressive interest rate hikes, the S&P 500 has posted double-digit returns each year and is up nearly 26% year-to-date. in 2024.
That came after the market had its best week in a year, soaring after Trump’s decisive victory with a Republican victory likely. For the week, the S&P 500 increased 4.7%, Dow Jones Industrial Average rose 4.6% Nasdaq rose 5.7% and the Russell 2000 small-cap index rose 8.6% as investors bet on tax cuts and deregulation to further boost the economy.
“We are sticking to our investment recommendation of Stay Home rather than Go Global,” Yardeni wrote. “In other words, the US is taking on a higher share of global equity portfolios.”
Of course, the Roaring Twenties from a century ago infamously ended with the stock market crash of 1929, triggering the Great Depression that lasted into the 1930s.
And for his part, Yardeni sees other scenarios this century. But his view of a new Roaring 20s is that it is at best 50% likely, while a 1990s-style stock market “melt” has a 20% probability, and a recession is likely. 1970s-style geopolitical crisis with a 30% chance of a US debt crisis. .
“But we are looking at raising the possibility of a Roaring 2020 scenario because the looser regulatory environment and lower corporate and income taxes under Trump 2.0 will spur investment and promote growth,” he added. promote economic growth based on productivity”.
Yardeni also warned about “Bond wary” sent yields higher as the outlook for US debt and deficits continued to worsen. Trump’s tax cuts and tariffs are also seen as inflationary, limiting the Fed’s ability to cut interest rates further.
But Scott Bessent, who was appointed Treasury Secretary under Trump, has noted that lower energy prices and deregulation are causing deflation and could offset the potential inflationary impact. of higher taxes.
“We agree with that view but would also add productivity growth,” Yardeni said. “A tight labor market plus continued investment in new technologies such as AI, robotics and automation will help limit unit labor costs and therefore inflation.”
Others on Wall Street have also highlighted the potential for another Roaring 20s, including analysts at UBS who said before the election that the likelihood of a boom economic cycle was 50%.
But Dan Ivascyn, chief investment officer at bond giant PIMCO, is more cautious about the impact of Trump’s policies on the economy and financial markets.
He told Finance time on Friday that the economy was at risk of “overheating” under a second Trump administration, threatening interest rate cuts by the Fed and the stock market.
Ivascyn told FT. “You want to be a little careful about what you wish for.”
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