Market Stagnation Ahead: Expert Predicts S&P 500 to Stall
Renowned market veteran Ed Yardeni has sounded the alarm, forecasting that the S&P 500 may remain stuck in neutral for the remainder of the year. According to Yardeni, the Federal Reserve’s ability to cut interest rates is severely limited due to the economy’s robust performance and the looming threat of rising US government debt.
Economic Strength Limits Rate Cuts
Yardeni cites recent economic data as evidence that the Fed may not need to intervene with further rate cuts. Real GDP growth surged 2.8% year-over-year in the third quarter, while business equipment investment rose an impressive 11%. Moreover, investment in information processing equipment reached a record high, signaling a strong economy.
Job Market Weakness: A Temporary Blip?
Some investors have expressed concerns over the recent slowdown in job growth, but Yardeni believes this weakness may be attributed to external factors such as union strikes and hurricanes. The unemployment rate remains near a historic low of 4.1%, suggesting the labor market is still resilient.
Bond Market Signals Higher Rate Expectations
The recent uptick in bond yields indicates that bond investors expect higher interest rates in the future. This sentiment aligns with Yardeni’s view that the Fed may have cut rates too aggressively, too soon.
Government Borrowing: A Growing Concern
As government borrowing continues to rise, economists warn that it could indirectly fuel inflation, thereby limiting the Fed’s ability to cut rates. Yardeni predicts that when the current debt limit suspension ends on January 2, a divided government may force the Treasury to resort to extraordinary measures to fund the government, potentially sparking a debt crisis in the bond market.
Fed Rate Cuts Unlikely Until 2025
Yardeni’s forecast defies the expectations of most investors, who anticipate the Fed will cut rates by 25 basis points this week and again in December. However, Yardeni believes it may take until 2025 for the Fed to deliver further rate cuts, leaving the S&P 500 stuck around 5,800 through the end of the year.
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