Wall Street prophet Ed Yardeni: Wall Street's patience is running out, and the market may repeat the lightning crash of 1987
Yardeni stated that they are concerned that "Tariff Turmoil 2.0" could trigger a rare lightning crash that does not accompany an economic recession, potentially occurring and reversing quickly, similar to 1962 and 1987. He has raised the probability of a U.S. economic recession and stock market bear market from 20% over the past three years to 35%
After experiencing a sharp decline last week, the U.S. stock market seems poised to continue the selling trend. Although President Trump stated that his tariff plan would take "a little time" to start bringing wealth to Americans, Wall Street's patience is running thin.
The latest views from Ed Yardeni, president of Yardeni Research and a well-known bull on Wall Street, have drawn market attention. As a staunch bull with a target price of 7,000 for the S&P 500 index, Yardeni has recently shown a subtle shift in attitude:
“We cannot rule out the possibility that the bear market began on February 20 (the day after the S&P 500 index hit an all-time high).... We are concerned that 'Trump Tariff Turmoil 2.0' could trigger a rare flash crash without an accompanying economic recession.”
Yardeni believes that a "flash crash" could occur quickly, similar to those in 1962 and 1987, and reverse just as quickly. He pointed out, “Therefore, this sell-off may provide buying opportunities, especially for those overvalued stocks that have now declined.”
Notably, Yardeni has raised the probability of a U.S. economic recession and a stock market bear market from 20% over the past three years to 35%. He believes that Trump Turmoil 2.0 is significantly testing the resilience of consumers and the economy, and given the sharp decline in the stock market, expectations for stagflation seem to be only increasing.
Yardeni expects that the stock market will be volatile in the first half of this year, with a potential return to record territory in the second half. He now believes that the probability of the bull market remaining intact and no adjustments or bear markets occurring by 2025 is 65% (down from 80%).
In the long term, his "Roaring 20s" outlook—where the stock market bull market continues into the 2030s—still has a 55% chance of realization, thanks to economic resilience and technology-driven productivity gains, provided that trade conflicts do not worsen.
Even more concerning for the market, Yardeni pointed out that his firm no longer expects "the Fed to save the market" (i.e., the central bank rushing to rescue the stock market when needed), as Federal Reserve Chairman Powell hinted last week that the central bank would not be in a hurry to cut interest rates:
“Without the support of the Fed and Trump, stock market bulls need to bet on the resilience of the economy and corporate earnings.”
Regarding potential buying opportunities in the stock market, Yardeni cited data indicating that insiders have begun buying cyclical sectors, including energy, technology, banking, industrials, and biotechnology stocks.
Data provided by Jonathan Krinsky, chief market technician at BTIG, shows that in the year following a 20% increase, the market typically bottoms out around March 12. He stated, “The market may still be volatile, but we believe the S&P 500 index could rebound to around 5,950-6,000 points, up 3-4% from last Friday's closing price.”
