Ed Yardeni predicts the “Roaring 2020s” stock market rally will persist through 2026, but he warns that aggressive fiscal stimulus from the Donald Trump administration poses a significant risk to the economic outlook.
Waking Bond Vigilantes
In a recent interview, Yardeni highlighted a potential collision between government spending and the bond market. He noted that Trump and the Treasury Secretary Scott Bessent have promised “humongous refunds” for taxpayers, potentially retroactive to the beginning of the year.
While intended to stimulate the economy, Yardeni fears this massive injection of liquidity could antagonize “bond vigilantes”—investors who sell off bonds to protest fiscal profligacy, driving up interest rates.
“The biggest risk is that bond vigilantes don’t like all of this stimulus,” Yardeni cautioned. He pointed out that the combination of renewed Quantitative Easing (QE) and heavy fiscal spending could lead to volatility in 2026.
See Also: ‘Trump Accounts’ May Trigger ‘Compliance Nightmare’ With IRS: Tax Experts Warn Parents
The ‘Roaring 2020s’ Continue
Despite these fiscal concerns, Yardeni remains audaciously bullish on equities. He forecasts the S&P 500 will climb to 7,700 in 2026, roughly a 10% increase from current levels.
He attributes this continued growth to an AI-driven productivity boom that will boost corporate earnings, justifying higher market valuations even outside the “Magnificent 7” tech giants.
Addressing ‘Have-Not’ Economy
Yardeni suggests the push for refunds is driven by a stark economic divide. He describes a “Chick-fil-A Economy” where Baby Boomers—flush with assets and low debt—are spending freely, while younger generations struggle with housing affordability.
“The Baby Boomers are living longer… but meanwhile, kids cannot buy a house,” Yardeni noted.
He believes Trump’s policies aim to address this dissatisfaction among the “have-nots,” though the cost of such relief may be a restless bond market.
U.S. Benchmarks To End 2025 On Positive Note
Year-to-date, the S&P 500 was 17.67% higher, whereas the Nasdaq Composite and Dow Jones gained 21.75% and 14.32%, respectively.
However, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, closed lower on Monday. The SPY was down 0.36% at $687.85, while the QQQ declined 0.48% to $620.87, according to Benzinga Pro data.
The futures of Dow Jones, S&P 500, and Nasdaq 100 indices were lower on Tuesday.
Read Next:
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Shutterstock
Recent Comments