'Between Iran and the anvil': Yardeni founder doubles down on risk of US market collapse

Ed Yardeni, founder of Yardeni Research, has almost halved his forecast for the U.S. stock market "for a period of rapid change," Bloomberg writes. U.S. stocks face a growing risk of a sharp sell-off this year as escalating military conflict in the Middle East hurts global markets, says the former U.S. Federal Reserve economist and one of Wall Street's most frequently quoted strategists.

Financial market veteran Ed Yardeni raised the probability of a meltdown in the U.S. stock market by the end of the year from 20% to 35%. At the same time, he revised from 20% to 5% the odds of a meltup, i.e. a rally on investor enthusiasm not supported by fundamentals, Bloomberg reports. This forecast is especially noteworthy, given that after the market plunged in April amid the introduction of Donald Trump's trade duties, Yardeni remained one of the most consistent optimists among strategists, the agency wrote .

The new estimates came amid a jump in oil prices above $100 per barrel. Investors are preparing for a protracted conflict between the U.S. and Iran, which could provoke a further rise in energy prices, explains Bloomberg. As a result, the market is radically revising forecasts on monetary policy: expectations of the first Fed rate cut this year have shifted from July to September. At the same time, there is a growing number of traders on the options market who bet that the regulator will give up easing policy this year, the agency notes.

"The U.S. economy and stock market are now between Iran and the anvil. The Fed is in the same position," Yardeni noted. - If the oil shock lingers, the Fed's dual mandate will be sandwiched between the risk of high inflation and rising unemployment."

Despite the short-term pessimism, Yardeni's core scenario remains valid, Bloomberg clarifies. His basic forecast, called "Roaring 2020s", assumes a decade of steady and active growth of the U.S. economy, supported by a rapid increase in labor productivity. The strategist estimates the probability of realization of this scenario by the end of this year at 60%, the agency stresses.

In the longer term, the expert's view is even more optimistic: Yardeni assigns 85% to the continuation of the era of the "Roaring 2020s" over the next decade. At the same time, he reserves 15% for the risk of a return to the stagflation scenario characteristic of the 1970s. According to the financier, if investors begin to seriously build stagflation into their expectations, the transition to a bear market becomes more likely.

This article was AI-translated and verified by a human editor