Societe Generale Forex: All five bears have failed! Wall Street veteran: 20% upside

So far this year, U.S. stocks have rallied impressively as fears of a recession appear to be coming later than most people initially expected, and even now recession fears are receding。

The S & P 500 and Nasdaq 100 both entered bull markets earlier this year, gaining 17% and 39% respectively this year.。

Industrial foreign exchangeEd Yardeni, a market veteran, said in a report on Wednesday,All bearish views in favor of a stock market sell-off and eventual recession have come to naught, implying that there could be more upside ahead。Yardeni forecasts that the S & P 500 will reach 5,400 by the end of 2024, indicating a potential upside of up to 20%.。

Yardeni believes that here are five reasons why bears are bearish on the stock market and why they have not derailed the current rally。

So here's one.Leading economic indicators are falling。

Yardeni stressed that the Leading Economic Indicators Index (LEI) peaked in December 2021 and has declined by 9.4% since then to May this year.。The previous decline in the LEI had correctly predicted a recession eight times, on average about 12 months earlier than a recession。

But Yardeni thinks,The index is more skewed towards manufacturing than services。LEI's recent data "is consistent with our rolling recession scenario, where the current recession is rippling through the commodities sector."。This is confirmed by the weakness of the ATA Truck Tonnage Index and rail vehicle intermodal container loads over the past year. "。

Second,yield curve inversion。

“yield curve inversionIt shows that investors believe that the Federal Reserve will continue toTighten monetary policyThis could lead to a financial crisis, which could turn into a full-blown credit crunch and recession。The credit crunch caused the recession, notyield curve inversionForeshadowed these events ", Yardeni said。

"The yield curve inverted last summer。It again correctly predicted the banking crisis that occurred in March。So far, the difference in this inversion is that the Federal Reserve has responded very quickly, adopting emergency liquidity facilities。This arrangement has so far averted an economy-wide bank run and credit crunch", Yardeni said。

And thirdly,A decrease in the money supply。

Bearish investors have been warning of continued weakness in the M2 money supply, as it suggests monetary policy is too tight to trigger a recession。Yardeni said that although M2 money supply fell by 4% last year, it is still about $2 trillion higher than before the epidemic。

"Total demand deposits in M2 in May were $5 trillion。We estimate that this is $1.50 trillion above the pre-epidemic deposit trend line。Demand deposits currently account for 24% of M2, up from 10.3% in January 2020.。M2 has not been so liquid since September 1972", Yardeni said。

And four.Consumers are depleting their excess savings。

Consumers have been spending their excess savings due to the epidemic, with some banks estimating that their excess savings will be completely depleted by the end of this year。ButYardeni is more optimistic about the situation。

"The annual change in M2 is closely correlated with the 12-month change in personal savings, suggesting thatAccording to our analysis of M2, consumers still have a large surplus of savings"This conclusion is confirmed by Federal Reserve data on deposits and money market funds."。

Yardeni estimates that baby boomers alone held between $1- $2 trillion of excess current assets at the end of Quarter 1,This allows consumers to have ample funds to spend and helps support the economy。

Fifth,Tighten monetary policy。

"Monetary policy is restrictive, especially given the tightening of lending standards in response to the banking crisis in March and the ongoing QT (quantitative tightening) programme。However, very loose fiscal policy has to some extent offset the impact of tighter monetary policy。In the past, fiscal stimulus usually came at the end of a recession, or even after it ended。This time, there was a lot of fiscal stimulus ahead of the recession。That's another reason why there hasn't been the next recession so far, "Yardeni said。