The stock market euphoria sparked by Donald Trump's victory is set to last, according to market veteran Ed Yardeni.
Yardeni on Monday reiterated his forecast for the S&P 500 to hit 10,000 by the end of the decade, a 66% gain from current levels. He also upped his year-end forecast for 2024 to 6,100, implying a 1.8% gain.
The long-time forecaster pointed to heightened odds of a "Roaring 20s" scenario after Trump's win—and a likely Republican sweep of Congress—fueled a rally that carried stocks to their best week of the year.
He says the "animal spirits" that fueled last week's big gains will likely continue to boost investor sentiment as the President-Elect unveils more pro-business policies.
"We believe these forecasts are consistent with our Roaring 2020s scenario, which is receiving a boost from the animal spirits that should result from Trump 2.0's economic policies," Yardeni wrote.
Trump's win early last Wednesday has fueled the S&P 500, Nasdaq, and Dow Jones Industrial Average each to record highs, propelled by the "Trump trade," which has sent everything from bitcoin to the dollar to Tesla soaring.
Investors are widely expecting Trump's second presidency to bring more business-friendly policies, including less regulation and lower taxes, which will help drive corporate profits higher.
As a result, Yardeni says he expects industry analysts to up their S&P 500 earnings estimates, and raises his own from $275 to $285 for 2025, and from $300 to $320 for 2026. Those estimates assume Trump will quickly lower the corporate tax rate from 21% to 15%, he says.
He adds that market optimism could intensify further if the wars in Ukraine and the Middle East get resolved sooner than initially expected.
Yet Yardeni warned, too, that the euphoric feeling on Wall Street and stretched valuations in some mega-cap names could set the stage for a difficult comedown if stocks fly too high to fast.
"Animal spirits can be associated with irrational exuberance causing a stock market meltup that could set the stage for a meltdown," he said.
While he doesn't see a huge risk of a bear market amid the current euphoric sentiment, Yardeni said he does expect to see corrections before the end of the decade, he says.
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