Ed Yardeni is president and founder of Yardeni Research, a global investment research strategy firm. A former economist for the Federal Reserve Bank of New York, he is widely followed by institutional investors for his investment strategy publications. Dr. Yardeni is often seen on CNBC and is published in financial publications like the Wall Street Journal, The New York Times and Barron's.
Dr. Yardeni recently sat down with ETF.com to discuss his 2015 projections for the S&P 500 and 10-year Treasury yields. He tells us why he doesn't see oil prices bouncing back anytime soon, and why he's not bullish on European securities even though he expects the ECB to begin large-scale bond purchases.
ETF.com: Your projection for the year 2014 for the S&P 500 was 2014 points, which was pretty close to where it closed the year out. What is your projection for the S&P 500 in 2015?
Ed Yardeni: 2,300. I'm expecting earnings to be up about 7 percent and the valuation multiple on a forward earnings basis to rise to about 17 from about 16 currently.
ETF.com: Every strategist and analyst on Wall Street has a positive outlook for the S&P 500 in 2015. Does that concern you at all? Can everybody really be on the same side of the trade?
Yardeni: It is of concern. We saw a unanimous bearishness on the outlook for the bond market at the beginning of last year, and the bond yield went from 3 percent down to 2 percent. So that was a fairly recent example of where, when everybody agrees, you want to be wary.
However, I think the reason you're not seeing any bears anymore is because they've all learned that you don't want to fight the Fed. You don't want to fight the major central banks of the world. The ECB is apparently about to ease monetary policy further. The Bank of Japan is in the midst of a program that provides more monetary stimulus as well. The Bank of England has said that it probably will postpone tightening of its policy.
So everybody is focusing on what the Fed is going to do. As Janet Yellen in her press conference indicated, the Fed is going to be patient. That was in the FOMC statement as well. So there's just widespread expectations that central banks are going to continue to keep interest rates near zero. We've seen bond yields in Europe, in Germany, close to zero. That's led to lower bond yields in the U.S.
As long as the central banks are committed to providing so much liquidity in such easy monetary conditions, it suggests that stocks should continue to rise, especially in the U.S., where the economic outlook remains quite bright.
ETF.com: Regarding bond yields in the U.S., strategists are all over the map, from 1.50 percent to 3 percent as to where the 10-year yield is headed in 2015. What's your 2015 projection for 10-year yields?
Yardeni: The most likely scenario is we'll end up the year where we are right now, around 2 percent for the 10-year. It's conceivable that it could go below that between now and year-end. But what is keeping yields down in the U.S. is how low they are in Germany and Japan. The outlook is that they're going to stay that low overseas. In addition, the strong dollar makes our bonds very attractive to investors in Japan and Europe because they're looking at a higher bond yield in the U.S. with a weaker domestic currency; that increases the return that they get by investing in the U.S.
Of course, there is a global secular stagnation everywhere except in the U.S. The U.S. really stands out as being fairly strong compared to the rest of the world, on average. The global economies outside the U.S. have got secular stagnation and are suffering from deflationary pressures. That's all because easy money has been stimulating supply more than it has been demand, leading to deflation. That's being corrected right now in several markets, particularly in the commodity markets, which adjust most quickly, as the plunge in oil prices will likely lead to global reductions in supply.