Transcription
Ed Yardeni: I could see the S&P 500 getting to 10,000 by the end of the decade. And that's really not crazy numbers to anticipate.
Consuelo Mack: This week on WEALTHTRACK: the "Roaring 2020s" are alive and well. That is the view of influential strategist Ed Yardeni, who correctly dubbed this decade the "Roaring 2020s" six years ago. Why is he still so optimistic? He'll tell us next on Consuelo Mack WEALTHTRACK.
Narrator: Funding provided by ClearBridge Investments. The Fairholme Foundation. First Eagle Investments. Bill Miller. Miller Value Partners. Baird. Strategas Asset Management. Research Affiliates. Royce Investment Partners. Seafarer Capital Partners. And Women Investing in Security and Education.
Consuelo Mack: Hello and welcome to this edition of WEALTHTRACK. I'm Consuelo Mack. 'Tis the season for New Year's forecasts, taking stock of the year we are leaving behind and preparing for the one that we are entering. I asked this week's guest to join us because he has amassed a stellar record of getting not just 2025, right, but also correctly assessing the tenor of the 2020s decade so far. He is Ed Yardeni, president and chief investment strategist of his macro research and strategy firm, Yardeni Research, which he launched in 2007. He is a PhD economist, longtime Fed watcher and investment strategist, and author of several books, including "In Praise of Profits" and "Fed Watching for Fun and Profit." You can see our in-depth interviews with Yardeni on each book on WEALTHTRACK.com. In Yardeni's 2026 outlook he writes, "we expect that 2026 will be just another year of the Roaring 2020s, which remains our base case scenario. Our Roaring 2020s scenario has had a good six-year run since we first predicted it in 2020." To begin our conversation, I asked Yardeni to describe his Roaring 2020s scenario.
Ed Yardeni: When I say Roaring 2020s, I'm clearly going back in time and relating it to the 1920s. The the two decades rhyme and there are quite a few similarities. So, for example, before the 1920s, there was a terrible war. We call it World War I. Back then they didn't have World War II, so they called it the Great War. And millions of people died. When the soldiers came back, they were all sick from the trenches and the Spanish flu spread throughout the world, again, killing millions of people in 1918 and 1919. And then we had a pretty significant recession back in the early 1920s, during 1920. And back then they called it a Depression. But, you know, if you were thinking about the outlook for the rest of the decade in the 1920s, at the beginning of the decade, you would have naturally been pretty pessimistic about the outlook. But it turned out to be the Roaring 1920s, after all. And to a large extent, there was a tremendous technological innovations that benefited both consumers and businesses. Productivity increased dramatically. So did real incomes. And of course, the stock market went up quite a bit.
Ed Yardeni: The unfortunate thing about making the allusion to the 1920s is, of course, it ended badly. So when I talk about the Roaring 2020s... I've been talking about that really since November of 2020, and back then it looked pretty delusional. But again, similarities. We had the pandemic. We had a two month recession in 2020. It was kind of artificial. It was caused by the lockdowns. But it was hard to get too excited about the rest of the decade in 2020. But we thought that there's a fundamental weakness in the labor market. I'm a baby boomer, and I expected that a lot of my cohorts would be retiring and that that would slow down the labor force, and it might be hard to replace them with people with similar experiences. And as a result, I thought that productivity would make a pretty significant comeback, that businesses would have to augment, increase the productivity of their workers, and that that would have very positive consequences for economic growth, for keeping inflation down, for boosting real incomes of workers, and then, of course, boosting profit margins. So far, so good as we head into 2026.
Consuelo Mack: So the Roaring 2020s... Is it primarily that they are fueled by a productivity boom? Is that what's going on?
Ed Yardeni: Same as the 1920s...
Consuelo: Right.
Ed Yardeni: Obviously I have to be concerned that it might end badly. And I'm always looking out for for danger and what could go wrong. But look at what the economy has tolerated. We had the pandemic, we had the two-month lockdown recession. We had social distancing requirements, which made it hard for services. Then we had the supply chain disruptions that led to a surge in inflation. That led the Fed to raise interest rates. This year we've had tariffs and now we've got some funky problems in the labor market. Uh, so there's a lot going on. And here we are at an all time record high in real GDP, all time record high in real consumption per household. But the stock market's at an all time record high. And again, we just kind of stress tested the global economy with Trump's tariffs. And yet the global economy is still growing. The US economy is still growing. So maybe it doesn't have to end badly. So I'm looking forward to doing the Roaring 2030s with you.
Consuelo Mack: So what is it about our economy in particular that makes it so resilient?
Ed Yardeni: Well, I think we, uh, responded pretty aggressively to the lessons of the 2008-2009 debacle. We did, uh, tighten up regulations on the banks. Meanwhile, the the capital markets continued to expand and grow, and they've also established some shock absorbers, uh, in, in the capital markets. So, for example, we have a lot of money that's available in distressed asset funds. Those people, I have... Some of them are my accounts. And, you know, I'll walk into them and, forgetting that they're distressed asset managers say, isn't it great the market's at an all time record high? And they'll look at me really glum and say, hey, we we're looking for $0.25 on the dollar. You know, they're looking for distressed assets. But that's a very important, uh, story because there were no distressed asset funds during the Great Depression. Nobody that could clear the market real quick at $0.25 on the dollar. And then they had another $0.25 to completely restructure what they what they had purchased, and suddenly it's worth a dollar. So there's a lot of structural changes that have occurred in the economy. People are twitchier about a recession, which maybe makes them also more responsible. You know, over the past four years, we've had the most widely anticipated recession of all times. That didn't happen. The no show recession, the Godot recession. It just didn't happen. I think I was almost alone among the optimists saying, I think this is going to be surprisingly resilient. I mean, we really haven't had a recession since 2007, 2008, 2009. The the two-month thing was obviously, uh, artificially imposed by lockdowns.
Ed Yardeni: And look how quickly we came out of that one. Americans are great. When when we're happy, we spend money. When we're depressed, we spend even more. And people just went out buying whatever they could. Guess what, they couldn't really buy services because of social distancing. So they bought goods. So we had this huge increase in the goods demand, which then led to supply supply chain disruptions. But again, through all through thick and thin, the economy has been resilient. So shouldn't we look at the past four years and learn from that and conclude maybe the economy really is more resilient. But I think on the consumer side, the economy can't be resilient without a consumer. And the consumer side, I think you got retiring baby boomers with $80 trillion of net worth: all time record high. We've never had a retiring generation with so many people that had so much money. And I know it's not evenly distributed, but we're talking about $80 trillion in nest eggs. And the baby boomers and my friends anyways are texting me from the from their cruises. I get seasick so I don't go along with them, but they tell me, hey, we're having a great time, wish you were here and keep up whatever you're doing because the market's going up and as fast as we're spending money, my... Our net worth just keeps going up because of the stock market. Now maybe that's the fatal flaw here. Maybe the stock market, for one reason or another, takes a dive.
Ed Yardeni: And maybe that's where the the chink in the armor of the resilient economy is. And then one more thing, Consuelo... And that is technology. Capital spending now accounts for over 50% of capital spending. And, uh, companies kind of have this attitude that they have to spend in technology because if they don't, their competitors will and will use it to increase productivity, to cut costs. And, um, and technology isn't really that expensive. I know we could get into the story of the data centers, but for, for example, for my small little company, we used to have to buy Word and Excel and buy Microsoft operating system and put it into our computers for updates. Now you just rent them. There's just a monthly fee and they automatically update. We have one IT person working remotely from Denver, Colorado. So the productivity of the technology centers industry has increased dramatically, and I think that's another source of the resilience. One last thing, Consuelo, like it or not, we do have these deficits...
Consuelo: Right.
Ed Yardeni: They just won't go away. And we're talking about $1.5 trillion to $2 trillion.
Consuelo: Yes.
Ed Yardeni: Maybe at some point this will come back to haunt us. It hasn't so far. And meanwhile it's very, very stimulative. And going into next year, the Big Beautiful Bill is going to cut taxes for a lot of people. And Trump is talking about giving some of the tariff revenues to American citizens. There's a lot of explanations for the resilience. Economy is just not as interest rate sensitive as it used to be.
Consuelo Mack: And why isn't it as interest rate sensitive as it used to be?
Ed Yardeni: I think it's because the, uh, these the current level of interest rates is actually back to normal. You know, when the Fed raised the Fed funds rate, uh, from 0 to 5.5% in 2022 and 2023, it's like...
Consuelo: Right.
Ed Yardeni: And everybody said, well, we're going to have a recession.
Consuelo: Yes.
Ed Yardeni: I said, I understand it makes sense. You know, you look at the charts. Anytime the Fed raised interest rates this much, we've had a recession. But I didn't think that it was. I thought the capital markets would hang in there pretty well. And that the Fed had played whack a mole, whack a mole back in the great financial crisis and the great virus crisis. They knew how to inject liquidity if it was needed. And sure enough, we had a financial crisis in in 2023. Lasted about a weekend because the Fed came in and provided liquidity facility and the economy continued to to grow. I think that, as I said before, the, you know, one of the areas of concerns about the federal deficit is that we now have $1 trillion in net interest payments by the government on a 12 month basis.
Consuelo: Right.
Consuelo Mack: Bigger than what we spent in the Defense Department.
Ed Yardeni: Yeah. I mean, it's that's terrible. But it's called net interest outlays. It's a stimulative outlay. A lot of the baby boomers and other people are getting pretty significant inflows of interest from... By putting money in money market funds and treasuries. I mean, money market funds are over $7 trillion. All time record high. And that's because a lot of people don't want to take risks, and they feel like they're getting a pretty decent return. But that's stimulative.
Consuelo Mack: When does that debt crisis come home to roost? And as you just mentioned, especially with... It was one thing when interest rates were zero or less than 1%. But now the interest payments are huge. When does that really hit us in a meaningful way?
Ed Yardeni: A debt crisis is hitting Japan right now. Their bond yields are soaring because they have tremendous amount of debt because of their huge deficits. You could arguably say that something like that is heading to the United Kingdom, because they've also had fiscally excessive, irresponsible policies. Uh, the US, uh, still seems to be able to get away with it. I've been, uh, in this business for 45 years, over 45 years. And during that whole period, uh, we've had the debt doomsayers saying a debt crisis is imminent. And one of my one of my top shelves here, I have books that go all the way back to the 1980s, living beyond our means, the debt bomb, I mean, the... I coined the phrase "bond vigilantes" back in 1983, and I went back and read what I wrote, and I wrote that the that the bond market has the ability to maintain law and order in, in the capital markets and the credit markets if bond investors, the bond vigilantes, conclude that they're they can't trust the government to do that. And I said what the bond vigilantes are worried about, back in the 1983, is $250 billion deficits. You know, and now we're talking about one and a half to $2 trillion.
Ed Yardeni: And yet we still haven't had a crisis. We came pretty close in 2023, in the summer, when the bond yield went from 4 to 5% between August and late, uh, October. Uh, but Janet Yellen, the Treasury Secretary, uh, basically told the bond vigilantes, okay, okay. Um, I know you don't want me to issue more bonds. We need more money, but we're not going to issue more bonds than we have been. The pace is going to stay the same, but we're going to do it in a bull market. Now let's cut to now. And you've got Treasury Secretary Scott Bessent glowing about stablecoins. They just passed something called the Genius Act, which is uh, regulates stablecoin. And stablecoin is kind of like a Bitcoin that is pegged to the dollar and has to be backed by Treasury bills. So they've just created this huge demand for Treasury bills. But I mean, it's it can make your head spin because I don't know... Are we going to start including this in the money supply? In effect, we're converting Treasury bills into money, and it's high powered money because it it's like Venmo or Zelle. It just travels at the speed of light.
Consuelo Mack: That's so interesting. Ed, that's... You're right. That's a whole other source of liquidity.
Ed Yardeni: That's right. And meanwhile, by the way, people have been earlier this year, it's like the dollar is going to go down. Nobody likes the dollar anymore. Um, and the foreigners aren't going to be buying our bonds and our stocks. And the Chinese are going to... Anyways. The Treasury actually puts out data every single month on net capital inflows. And wouldn't you know it, over the past 12 months through August, net capital inflows, uh, remained near an all time record high. There were like $1.5 trillion over a 12 month period. And and interestingly, flows into the US equity markets were at an all time record high of $650 billion. So foreigners aren't bailing out on the United States. They're still very much buying. And it's one of the reasons I'm not joining the the dollar woebegones, uh, who are telling us it's it's going to go into a death dive.
Consuelo Mack: As far as the outlook for the market and for the economy for 2026, what is it?
Ed Yardeni: You know, I have my Roaring 2020s scenario. It's my base. It's my base case. I'm not refuting that they're going to there's going to be a recession. But in the Roaring 2020s scenario, there is no recession through the end of the decade. And, uh, what's, uh, what do I have working in my favor is the past 4 or 5 years, there's been no recession. There's actually been no recession. There was an artificially created since the 2008, 2009. So I'm just extrapolating the resilience of the economy will continue and that we're not going to have an imminent debt crisis, either public or private. Uh, that the economy continues to expand. We may have a continue to have a slowdown in in employment, but the offset will be wages rising faster than prices. That's that's what happens when you have productivity. So the resilience of the economy should continue to be visible in the resilience of earnings.
Consuelo Mack: Exactly... So the markets...
Ed Yardeni: Should go higher.
Consuelo Mack: Should go higher.
Ed Yardeni: Absolutely. Now of course it's P/E time Z. So let's talk about those two. The earnings side looks pretty good in the Roaring 2020s scenario. Uh I guess in a Roaring 2020s scenario you know it kind of feeds on itself. And at some point you get irrational exuberance. So the P/E doesn't necessarily go down. P/E usually go down if, uh, people worry about suddenly worry about a recession is coming imminently. Uh, if it doesn't happen, then you get a correction. So the market goes down 10 to 20%. If it does happen, then you get a bear market where the market goes down by over over 20%. In 2022 we had a bear market, but no, no recession, which is why it didn't last very long, and why we had this powerful V-shaped recovery coming out of that. People started to say, well, wait a second. After everything, all the stress tests that we've thrown at the economy and still doing okay, well, stocks really should be worth more. And so the valuation multiple has been kind of ranging between 18 and 22. If you look at forward earnings analysts expectations for earnings are going. And I'm assuming that continues to be the case 18 to 22. Because again in the Roaring 2020s scenario, no recession, not even necessarily a scare of a recession. And so if you maintain those admittedly high valuation multiples, the question is what does earnings do. And I see economic growth getting boosted by productivity, so that we may be looking back, you know, instead of two, 2.5% growth in real GDP. It may be more like three, 3.5%. Profit margins may stay high. I could see the S&P 500 getting to 10,000 by the end of the decade. And that's really not crazy numbers to anticipate.
Consuelo Mack: Obviously stocks like the Mag 7 have done extremely well... Outperformed... And I know you have another slogan for the rest of the S&P 500, which is...
Ed Yardeni: The impressive 493.
Consuelo Mack: The impressive... When will the impressive 493 or are they already... When will they be impressive and how impressive?
Ed Yardeni: It's hard to be impressive when you've got The Magnificent 7, you know, just like, uh, outpacing everything. So they kind of had been the Rodney Dangerfields of the S&P 500. It's a lot of Rodney Dangerfields. But I mean, in terms of market cap, the Magnificent 7 are over 30% of the S&P 500 market cap, and people have been concerned about the concentration. And couldn't that lead to a bear market? I said, well, it could lead to a bear market. It could also lead to a broadening market. And, you know, I think what's really healthy here is that we've had all this recent concern about an AI bubble. I don't remember worrying... People, worrying about an internet or a dotcom bubble back in the late 1990s.
Consuelo Mack: Well, they weren't worried about it then, or very few were.
Ed Yardeni: Yeah, very few were. But but here everybody's worried that, you know, these companies are spending too much on chips and that, uh.
Consuelo: Data centers.
Ed Yardeni: And data centers. And if it wasn't for data centers, the economy wouldn't be growing. So that's a very healthy development. You want people to be worrying about the market. It's the so-called wall of worry. Uh, but we're already seeing that the AI story is becoming a little bit more interesting. We're learning that, uh, the whole industry is, you know, viciously competitive. So maybe some of them are going to make some money and others won't make money, but they're all going to continue to produce these technologies that benefit all of us and benefit the impressive 493. If the Magnificent 7 keep doing business among themselves, and they don't create AI products and other products that they're getting revenues and earnings from, from everybody else, that is sort of a, you know, a story with an end. Whereas the story I'm telling is that we are in a digital revolution. It's kind of another thesis that that works well with the Roaring 2020s. But the digital revolution actually started in the mid-1960s with the IBM, IBM mainframes. I remember in the late 70s I did a PhD dissertation as econometrics, and I had to go to the data center at the university with a stack of cards. You actually sat down. I mean, people find this hard to believe, young people, that you actually to to code, you actually had to sit down and and punch cards. Punch paper cards. You had to sit there all day punching the instructions and the data. That was the only way to get the information into the computer. I handed it to the operator of the mainframe, and then they told me, well, come back around after 2:00 tomorrow and we'll have a big paper printout for you like that. And then I go through the paper printout. I say, well, I got to change this and that and I... It was insane.
Consuelo Mack: We're now into kind of the digital revolution topic for the for our next interview with you. To wrap up this interview, I'm going to ask you the one investment question for a long term diversified portfolio.
Ed Yardeni: My only regret in my investment life is that I just didn't put everything into the Nasdaq and just, you know, never looked at it. I mean, the Nasdaq has just been an amazing performer for years and years. I mean, it didn't do very well, obviously, after the tech boom. Yeah, the dotcom boom went went bust. Uh, but it's been on fire ever since the great financial crisis.
Consuelo Mack: And there's an ETF, the QQQ, right? Which is the Nasdaq 100 that you've recommended to us before.
Ed Yardeni: Yeah I would stay with that.
Consuelo Mack: That won't be a regret for you anymore because I'm assuming that you own it personally.
Ed Yardeni: Yeah, because I am in this business. I try to have a portfolio where I'm not worrying about it, because then it can influence kind of my, my own work. And so, yeah, I tend to I tend to put it into ETFs and you know, the S&P and the Nasdaq and try to stay out of trouble by not looking at the portfolio.
Consuelo Mack: Ed Yardeni, thank you so much for joining us for part one of your two-part interview on WEALTHTRACK. We really appreciate it. And we certainly hope that your, you know, 2026 forecast of a continuation of the Roaring 2020s continues.
Ed: Thank you.
Consuelo Mack: We're with you, Ed. Thanks, Ed.
Ed Yardeni: Thank you very much.
Consuelo Mack: At the close of every WEALTHTRACK, we try to give you one suggestion to help you build and protect your wealth over the long term. We have been asking our guests to do the honors for us and share the best investment advice they have ever received. Without hesitation, Ed Yardeni gave us his. This week's action point is stay long.
Ed Yardeni: Way back when, uh, I kind of started in the business. Uh, I left the Federal Reserve Bank of New York and went to E.F. Hutton. The mentality back then was there was a lot of trading going on, and, uh, Wall Street kind of was still the kind of the Wild West. It was before the the lawyers really kind of clamped down. There was one fellow, Larry Wachtell, who was very well known back then, and he always kind of had this wry little smile on his face that all this wild trading was, you know, might be fun. But if you really wanted to invest, you really wanted to invest for the long run. There's investing and then there's trading. And investing is going to make you money over the long run. Trading is is fine as long as you don't have a day job.
Consuelo Mack: So many of our recent guests have emphasized the importance of remaining invested in the stock market through good markets and bad. With few exceptions, stocks tend to appreciate over time, and for most investors, trying to time the market is a fool's errand. Staying long is sound advice. Next week, Ed Yardeni joins us again, this time to identify the megatrends influencing the US economy and markets and how to profit from them. Please follow us on Facebook, X and our YouTube channel. Thanks for watching. Have a great weekend and make the week ahead a healthy, profitable, and productive one.