- The stock market is in the perfect sweet spot to rally, said market veteran Ed Yardeni.
- The president of Yardeni Research pointed out three signs that the United States is in a "Goldilocks" economy.
- This is a perfect scenario in which inflation falls while economic growth remains strong.
Stocks appear to be in the perfect stage to rise even further, according to market veteran Ed Yardeni.
In a recent note, the president of Yardeni Research pointed to three signs that the economy appeared to be entering the ideal "Goldilocks" scenario that was just for the stock market to prosper. Economic growth is neither too hot nor too cold, meaning the United States appears poised to avoid a recession as inflation cools to the Federal Reserve's 2% target.
That is great news for investors. The Federal Reserve is keeping an eye on inflation and economic growth as it appears set to lower interest rates this year, a move commentators say could spark a big rally in the stock market.
"Like Goldilocks' favorite porridge, it is considered neither too hot nor too cold, but just right and therefore bullish for stocks," Yardeni said of the economy.
Here are three things that Yardeni says show the stock is in the ideal environment to continue rising.
1. The labor market remains strong
Unemployment claims have increased, but the unemployment rate still remains near a record low. The January nonfarm payrolls report beat expectations and showed U.S. employers added 353,000 jobs last month.
Jobless claims over the past week have held steady at around 215,000, suggesting unemployment in February will remain below 4%, Yardeni said. Markets will receive the next nonfarm payrolls report next Friday, March 8.
2. Inflation is cooling
Inflation has been dragged down since hitting a 23-year high in mid-2022. Consumer prices rose 3.1% in January. This figure is higher than markets expected, but it is far from a significant reacceleration. Meanwhile, personal consumption expenditures inflation, the Federal Reserve's preferred measure of inflation, rose 2.4% year over year, in line with economists' expectations.
Markets also feel fairly confident that inflation will fall lower. One-year inflation expectations have fallen to the 2% range since early 2024, according to Federal Reserve data.
3. Companies feel good about the economy
Businesses have seen a "strong rebound" in confidence over the past month, Yardeni said. Business is the most positive in nearly two years, according to regional surveys by the Federal Reserve, and expected business activity hit a level of 30 in February, up from just 1.9 in October.
"This confirms our view that the ongoing recession in the goods sector of the economy is bottoming out," Yardeni said.
Yardeni sounded bad strength of the US economy for months, calling the current climate an interpretation of the โroaring 20s.โ Previously, he predicted that the S&P 500 could reach 5,400 points by the end of the year, which would imply a whopping 17% return for the benchmark index.
