- Market veteran Ed Yardeni is increasingly worried about a stock market crash.
- Yardeni said sentiment measures, such as the ratio of calls to puts, are sending contrary bearish signals.
- "The problem with mergers is that they need to merge," Yardeni said.
Market veteran Ed Yardeni is increasingly concerned about a possible stock market crisis As the S&P 500 continues to reach new all-time highs.
Yardeni has been one of the biggest bulls on Wall Street since the stock market bottomed in October 2022, and his year-end 2024 and 2025 price targets for the S&P 500 of 5,400 and 6,000, respectively, They are some of the highest among market strategists.
But the rise of the stock market to consecutive all-time highs in the last week This has led Yardeni to offer some cautious comments, as the strategist worries that the stock market rally has gone too far too fast and could ultimately suffer the kind of collapse and crash that occurred in late of the nineties.
"The problem with mergers is that they need to merge," Yardeni told CNBC on Wednesday.
In a recent note to clients, Yardeni highlighted near-term sentiment measures that suggest there is reason to be cautious.
Bull/Bear ratios, derived from Investors Intelligence and AAII investment sentiment surveys, have reached high levels recently. Additionally, the put-call ratio, which measures the amount of protection investors are purchasing through options contracts, has reached relatively low levels.
"From a contrarian perspective, that's bearish," Yardeni said.
Of course, there's a good reason why stocks have risen so much in recent weeks and months, according to Yardeni. He noted that the economy and labor market remain resilient and on solid footing, and that inflation has declined considerably.
This was reinforced by Thursday's fourth quarter GDP release. which showed an economic growth of 3.3%, well above economists' expectations of 2.0% growth.
But that solid data also influences one of Yardeni's biggest concerns: the possibility of the Federal Reserve lowering interest rates, which could exacerbate a crisis in the stock market.
"Imagine what could happen if the Federal Reserve actually starts lowering interest rates. What worries me is that could cause a collapse in the market," Yardeni said.
For Yardeni, interest rate cuts are akin to the Federal Reserve pouring gasoline on the stock market rally, and could fuel higher asset price inflation and even drive a rebound in inflation.
"I think the Fed would be making a mistake if it lowered interest rates. I think Powell is going to start fighting back. [that]. "It's very aware of market forces and if the stock market continues to go up, it creates a positive wealth effect and that creates the potential for inflation to come back," Yardeni said.
