S&P 500 Hits Record Highs, But Are We Heading For A Crash?
2min read Starting from last Friday, the S&P 500 index has continuously hit new highs, immersing investors in a joyful atmosphere. However, experienced US stock market insider and founder of Yardeni Research, Ed Yardeni, is increasingly worried about a potential stock market crash.
Since the U.S. stock market bottomed out in October 2022, Yardeni has been one of Wall Street's biggest bulls, with his end-of-2024 and end-of-2025 targets for the S&P 500 index being 5400 and 6000 respectively, some of the highest targets among market strategists.
However, the recent rapid rise of the U.S. stock market is causing him concern. Following last Thursday's U.S. stock market close, when the S&P 500 index rose 0.53% to 4894.16 points and marked the fifth consecutive trading day reaching a new high, Yardeni, unusually for him, issude a warning.
He fears that the market's upward trend has gone too far and too fast, and could end up retracing its steps to the end of the 1990s.
He stated, Our main concern right now is that the S&P 500 may be starting a tech-led meltup similar to what happened during the second half of the 1990s.We are wondering whether a bout of irrational exuberance might push the multiple higher, inflating a speculative bubble in the stock market as occurred during the late 1990s.
A meltup, a term Yardeni introduced in a blog post in 2016, describes a situation where investors, not wanting to miss the opportunity to make money from a rising stock market, flock to buy, resulting in asset prices suddenly rising persistently, without an improvement in underlying fundamentals.
However, according to Yardeni, the extreme optimism brought about by a meltup will eventually lead to a market crash.
In a recent report to clients, Yardeni emphasised short-term sentiment indicators, which suggest a reason for caution.
Bull/bear ratios derived from sentiment surveys by Investors Intelligence and the American Association of Individual Investors (AAII) have recently reached high levels. Furthermore, put/call ratios, which measure the extent to which investors buy protection via option contracts, have hit relatively low levels.
From a contrarian perspective, that's bearish, said Yardeni.
Of course, Yardeni believes there are reasons why the U.S. stock market has risen so high in recent weeks and months. He points out that the economy and job market continue to be resilient and solid, with inflation having greatly retreated.
Thursday's fourth-quarter GDP data further confirmed this. The data showed the economy grew by 3.3%, far higher than the 2.0% economists had forecast. But these strong numbers also sparked one of Yardeni's biggest worries: a Federal Reserve rate cut, which could exacerbate a stock market crash.
Imagine what could happen if the Fed actually starts lowering interest rates. That's what I am concerned about is that that could spark a meltup in the market, he said.
In Yardeni's view, a rate cut is like the Fed fuelling a stock market rebound, which could further push up asset prices and even drive an inflation rebound.
I think the Fed would be making a mistake to lower interest rates. I think Powell is going to start pushing back against [that]. , the analyst said.