The U.S. stock market party is far from over? The Fed's rate cut cycle may usher in a "melt-up" scenario

According to the Zhitong Finance APP, Ed Yardeni, the founder of the well-known investment institution Yardeni Research, who has long been bullish on the U.S. stock market, recently stated in an interview that due to the unexpected and significant 50 basis point rate cut by the Federal Reserve last week, the U.S. stock market may experience a "melt-up" trend due to rapid easing - that is, the stock market may soar continuously to new historical highs, eventually resembling the internet bubble of the late 1990s. This Wall Street veteran also mentioned that if the Federal Reserve and other global central banks do not take a cautious stance, it could lead to a rapid resurgence in inflation.

Yardeni stated that the latest policy decision by the Federal Reserve has increased the possibility of a "melt-up" in U.S. stocks from 20% to 30%. The best explanation for the term "melt-up" is the period of the internet bubble when the S&P 500 index surged over 220% from 1995 to the end of the last century.

In a report released not long ago, this Wall Street veteran predicted that the S&P 500 index is expected to hit a breakthrough historical high of 5800 by the end of the year, compared to the index closing near its all-time high of 5718 points on Monday. Yardeni, in a recent interview, expressed even more bullish sentiment towards U.S. stocks, stating that under the impetus of the Federal Reserve's 50 basis point rate cut to initiate an easing cycle, the S&P 500 index may rise above 6,000 points.

Yardeni also believes that there is an 80% probability of a long-term bull market in U.S. stocks, while retaining a 20% possibility to address stock market turmoil similar to that of the 1970s when global stock markets, including U.S. stocks, were in turmoil due to inflation rates and geopolitical tensions.

Wall Street veteran reminds investors to remain cautious: Rapid easing by the Federal Reserve may pose risks

While Yardeni is bullish on the U.S. stock market, he also reminds investors to maintain a cautious attitude while seeking profits, stating that if global economic growth begins to overheat, there could be greater risks for assets such as stocks.

"If they (global central banks) overheat the economy, leading to continuous bubbles in the stock market, they will generate a series of problems," Yardeni emphasized in a media interview on Monday Eastern Time. He added that the Federal Reserve seems to be overlooking the upcoming U.S. presidential election, where both candidates have proposed policies that could reignite U.S. inflation rates.

Several Federal Reserve policymakers reiterated their confidence in the decision to significantly cut interest rates to initiate a loose monetary policy cycle, which to some extent implies that the Federal Reserve may continue to cut rates by 50 basis points in the future. In Yardeni's view, such a rapid easing pace may reignite inflation.

Minneapolis Fed President Neel Kashkari stated on Monday Eastern Time that he supports the Federal Reserve's decision to cut rates by 50 basis points, but he personally expects smaller 25 basis point normalization rate cuts at the November and December Federal Reserve monetary policy meetings. Meanwhile, Atlanta Fed President Raphael Bostic stated that with inflation and employment risks becoming more balanced, last week's significant rate cut adjustment will help bring the U.S. benchmark interest rate closer to a neutral level

S&P 500 Index Expected to Volatilely Rise to 6000 Points by the End of the Year, Possibly Setting New Records Next Year

The U.S. stock market had a rough start this month, with the S&P 500 Index falling over 4% in the first week. However, since then, investors have gained confidence in the ability of Federal Reserve policymakers to drive a "soft landing" for the U.S. economy through a rate-cutting cycle, thereby potentially leading the benchmark S&P 500 Index to achieve its best September performance since 2019 - historically, September has been the worst month for this index.

Adeney once again leans towards his "long-term bull market view" of the U.S. stock market, believing that under the comprehensive leadership of revolutionary artificial intelligence technology, the market is entering a new era of the "roaring 20s," characterized by a significant leap in productivity, accelerated economic growth, and substantial stock returns. However, he emphasized in the interview that the probability of this scenario occurring has decreased from his previous prediction of 60% to 50%.

According to a summary of the latest forecast survey of Wall Street strategists by institutions, this Wall Street veteran Adeney is usually one of the most optimistic stock market forecasters on Wall Street. His benchmark target for the S&P 500 Index is 5800 points, but he emphasized on Monday that it could potentially surpass 6000 points in an optimistic scenario.

6000 points - a once jaw-dropping and seemingly radical index forecast (at least for the entire year of 2023), now as the S&P 500 Index continues to hit new highs, is becoming more aligned with the latest forecasts of many optimistic strategists on Wall Street. They have steadily raised their bullish outlook on the U.S. stock market to keep up with the S&P 500 Index's bull market rise of up to 20% this year.

BMO Capital Markets, a top global investment institution, has the highest forecast point for the S&P 500 Index, reaching as high as 6100 points. The second-ranked is another investment institution, Evercore ISI, which expects the S&P 500 Index to close at 6000 points by the end of the year, and anticipates that the AI investment frenzy may drive the U.S. stock market to continue to rise to 7000 points by 2025.

On the other hand, Barry Bannister, Chief Equity Strategist at Stifel Nicolaus & Co., warned last week that the market is in a "Groundhog Day" period similar to the dot-com bubble era, and he personally predicts a possible 13% crash in the U.S. stock market in the fourth quarter. Bannister successfully predicted the bullish momentum of the U.S. stock market in 2023, outperforming many top strategists.

Scott Rubner, Managing Director of the Global Markets Division at Goldman Sachs, who accurately predicted the AI tech stock plunge triggering the U.S. stock market pullback, at least holds a bullish stance on U.S. stocks by the end of the year, believing that the U.S. stock market should rebound by the end of the year, but emphasizing that a significant rebound will only occur after experiencing unfavorable short-term situations such as technical pullbacks, fund flows, and pre-election anxiety. Rubner stated that regardless of which U.S. presidential candidate wins, the S&P 500 Index may experience a year-end rebound stimulated by "Fear of Missing Out (FOMO)," with the index potentially rising to 6000 points by the end of the year As the US stock market continues to hit new historical highs, the technical analysis team from Oppenheimer, a Wall Street investment institution, believes that there are almost no signs indicating that the market is about to peak. The institution is encouraged by the fact that over 60% of the stocks on the NYSE are trading above the 200-day moving average, which is a healthy bullish sign of the market rally, as it indicates that the market rally is not just driven by a few large tech companies including Apple, NVIDIA, and Microsoft.

"If the current bull market in the US stock market follows historical average levels, the US stock market may continue to rise until the end of 2025, with the S&P 500 index reaching around 7000 points by then," Oppenheimer stated in a recent bullish trend report on the US stock market