- The stock market’s recent downtrend is largely played out and the S&P 500 will still rebound before the end of 2020, according to market strategist Ed Yardeni.
- Major indexes posted their worst week since March to close October, as rising COVID-19 cases slammed investor sentiment.
- The slide is merely a “garden variety correction,” and stocks will rebound as investors rush back to the market, Yardeni told CNBC.
- The long-standing market bull expects the S&P 500 to reach 3,500 by the end of the year and 3,800 by mid-2021.
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Stocks are still poised to close out 2020 near record highs even after September and October’s violent sell-offs, strategist Ed Yardeni said Friday.
Markets rebounded slightly Monday from their worst week since the pandemic first hit the US in March as Tuesday’s Presidential election draws nearer. Two major indexes â€” the S&P 500 and Nasdaq composite â€” are less than one percentage point from correction territory, and the Dow Jones industrial average has been in one since October. With election uncertainty poised to lift volatility, markets could quickly slide further should an unexpected outcome materialise, experts have warned.
Still, Yardeni told CNBC that the downtrend is nothing more than your “garden variety correction” that will peter out at a 10% to 15% drop. The long-time market bull expects the S&P 500 to quickly recover and end the year at 3,500, roughly 7% higher than its Friday closing level and just below its September 2 record high.
Investors exiting the market “get a lot of pain sitting there,” and with interest rates close to zero, there are few other areas to park cash, Yardeni said.
“There’s always going to be some churning around from overvalued areas of the market to cheaper areas of the market. And I think that will bring the market back,” the president of Yardeni Research said.
That end-of-year rally will bleed into 2021 and lift the benchmark index to 3,800 by the middle of next year, he added. The call implies a 16% jump from Friday’s close.
To be sure, equity markets face more risks than just election-week uncertainty. Coronavirus cases continue to spike in the US, and some worry the country may need to join European peers in enacting partial lockdowns. The lack of a near-term stimulus bill also dampened some moods, though many are banking on a Biden presidency or Democratic congressional victories to yield a formidable relief package.
Stocks also face off against an economic recovery that’s slowed significantly from its initial bounce-back. While the US gross domestic product leaped a record 33.1% in the third quarter, the rebound is “definitely going to slow down here,” Yardeni said, adding it may look more like “a Nike swoosh” than the V-shaped trend seen from some indicators so far.
Still, the market bull is optimistic that the recovery will continue and can drive stocks’ uptrend through the new year.
“I don’t see a double-dip. I don’t see a W. I think the economy will continue to do remarkably well in the face of all these challenges as long as we don’t lock everything down again, and I don’t think we will,” Yardeni said.
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