Yardeni Research: Federal Reserve's Rate Cut to Propel Stock Market Despite September Challenges
Yardeni Research analysts are bullish on the stock market's performance over the next few months, going against the historical trend of September being a tough month for stocks. They believe that the Federal Reserve's expected monetary easing, starting with a 25 basis points cut in the federal funds rate on September 18, will provide strong support to the market.
The upcoming release of the Federal Open Market Committee's Summary of Economic Projections on the same date is also expected to signal further rate cuts in the coming months. The S&P 500 has already seen a notable year-to-date increase of 18.4%, reflecting investor optimism about future positive developments.
Despite ongoing geopolitical risks, such as Russia's invasion of Ukraine, subdued oil prices and record stock rallies highlight the market's resilience. Domestically, the U.S. economy is on a steady growth path, with inflation nearing the Fed's 2% target. Analysts have high expectations for the S&P 500's operating earnings per share for this year and the next two years.
While the current valuation multiple for the S&P 500 may seem slightly stretched at 21.1, Yardeni Research believes that strong economic indicators could result in fewer rate cuts in the next year, potentially impacting the bond market more than stocks. The firm predicts a year-end rally for the S&P 500, with a target of 5800.
In addition, Yardeni Research foresees a rise in the to between 4.00% and 4.25% in the near future. Overall, the analysts are optimistic about the market's outlook and see a positive trajectory ahead.
Analysis:
In summary, Yardeni Research is optimistic about the stock market's performance in the coming months, citing the Federal Reserve's monetary easing and positive economic indicators as key drivers. Despite geopolitical risks, the market has shown resilience, with strong growth in the U.S. economy and earnings expectations for the S&P 500. While valuation multiples may appear stretched, better-than-expected economic data could lead to fewer rate cuts, potentially impacting the bond market more than stocks. The firm anticipates a year-end rally for the S&P 500 and a rise in the in the near future. Overall, the outlook is positive, with potential for further growth in the stock market.
